COMMERCIAL LAW 



URIYERSAL BDSIHESS IHSTITDTE, I. 



NEW YORK 



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COPyRIGHT DEPOSrr 



COMMERCIAL LAW 



FOR 



ACCOUNTANT STUDENTS 



MEYER B. CUSHNER. LL. B. 



OF THE NEW YORK BAR 




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SS3ii 




COPTRIOHT BY 

UNIVERSAL BUSINESS INSTITUTE. Inc. 
NEW YORK 
JULY, me' 






2,7 



UBBARYofCONGRF-SS 

Two CoDies Received 

JUL 27 1906 

CoRyiltrht Entry 
ASS /^ .\Xc, No. 
COPY B. 




PREFACE. 



This book has been written for the accountant 
student and for the public generally with the hope 
that it will enable them to understand the legal princi- 
ples underlying the great subject of law as applied to 
commercial dealings and usages in general. It is not 
intended for lawyers and law students, but mainly for 
business men, and students desirous of obtaining the 
rudiments of this vast topic, not that they might there- 
by act as their own lawyer, but by having this knowledge 
they may better appreciate the importance of calling 
in a lawyer at the proper time and thus avoid blunders 
occasioning great annoyance and expense. 

The practical questions at the end of each lesson have 
been gathered from actual cases decided by the courts 
of various jurisdiction, from questions given at different 
examinations for the C. P. A. Degree, and others have 
been arranged by the author. It can readily be seen 
that these questions cannot be answered unless the text 
has been thoroughly mastered. The author has not 
hesitated to avail himself of the many authorities on 
the various subjects covered in this volume, and is under 
vast obligation to them for the help which he has 
received in the use of their books. 

Meyer B. Cushner. 



CONTENTS. 



CHAPTER I— LAW IN GENERAL. 

What is Law — ^Why Law is Necessary — Enforcement of Laws — 
Municipal Law — Law Merchant — Common Law — Common 
Law Courts — Equity Courts — Judicial Decisions as Pre- 
cedent Between Federal and State Courts — The United 
States Supreme Court is Independent of the Decision of the 
State Court Under These Circumstances — The State Courts 
are Absolutely Bound by the Decisions of the United States 
Supreme Court Even if They Have Views That Are Radi- 
cally Different. 9-15. 

CHAPTER II— LAW IN GENERAL 

{Continued). 
Substantive and Adjective Law — ^What is Substantive Law — 
What is Adjective Law — Classification of Rights — Remedies 
— Actions in Personam — Actions in Rem — Property — 
Questions on Law in General. 16-24. 

CHAPTER III— CONTRACTS. 

The Formation of a Contract — Definition of a Contract — Offer 
and Acceptance — Revocation of an Offer — Acceptance — 
Communication of Offer and Acceptance — Who May Enter 
Into Contracts — Capacity of Parties — Infants — Necessaries 
of Life — Lunatics, Idiots, and Drunkards — Married Women 
— Legal Status: Aliens — Agents — Form of Contract — A 
Legal Consideration — Unreal Consideration — ^Waiver of a 
Legal Right — Forbearance of a Legal Right — Mutual Con- 
sent Necessary — Mistakes in Contract — Fraud — Duress — 
Undue Influence — Legality of Object — Assignment of the 
Contract — Assignment of a Right — Notice of Assignment — 
Assignment by Operation of Law — Discharge of Contract — 
Discharge by Agreement — Discharge by Express Pro"sasions 
in Contract — Accord and Satisfaction — Discharge by Sub- 
stitution — Discharge by Performance — Tender of Perform- 
ance — Nature of a Tender of Money — Legal-Tender Money 
of the United States — Discharge by Breach — Discharge by 
Impossibility of Performance — Discharge by Operation of 
Law — Practical Questions on Contracts. 25-52. 



II COMMERCIAL LAW. 



CHAPTER IV— STATUTE OF FRAUDS. 

Its Origin — Why the Statute of Frauds Was Enacted — Require- 
ments of the Statute — Section 4th of the Statute — Effect of 
the Statute on Oral Contracts — Second Clause of Section 
Four of the Statute — Debt, Default, or Miscarriage — Fifth 
Clause of Section Four — Section 17 of the Statute — Fraud 
Committed Under Cover of the Statute and the Remedy — 
Practical Questions on the Statute of Frauds. 53-59. 

CHAPTER V— STATUTE OF LIMITATIONS. 

What Are Statutes of Limitation and Their Object — Time of 
Running — The Statute as Affecting Simple Contracts, Judg- 
ments, and Liens — Postponements and Interruptions of the 
Statute — New Promise and Acknowledgement — Part Pay- 
ment — Practical Questions on Statute of Limitations. 60-66. 

CHAPTER VI— INTEREST AND USURY. 

Definition of Interest — Interest by Express Agreement or Con- 
tractual Interest — Interest Allowed as Damages — Rate of 
Interest — Usury — What Contracts are Usurious — Practical 
Questions on Interest and Urusy. 67-72. 

CHAPTER VII— NEGOTIABLE BILLS AND NOTES. 

What is Meant by Negotiability — Formal and Necessary Requi- 
sites of Negotiable Bills and Notes — Requisites of Bills and 
Notes — For a Bill of Exchange — For a Promissory Note — 
For Both Bills and Notes — An Unconditional Order or 
Promise — Time of Payment — Specifications of Parties — 
Words of Negotiation — Delivery of the Instrument — Ac- 
ceptance of Bills — Indorsements — Different Kinds of In- 
dorsements — Special Indorsement — Without Recourse In 
dorsement — Conditional Indorsements — Restrictive Indorse- 
ment — Essentials of Indorsements — Liability of Parties to 
Negotiable Instruments — The Acceptor — The Maker — The 
Drawer — The Indorser — Accommodation Parties — The Ac- 
commodated Party — Presentation and Notice of Dishonor — 
When a Negotiable Instrument is Dishonored — Presentment 
Necessary — What is Presentment — Time of Presentment — 
By Whom Presentment is to Be Made — Further Comment 
on Presentment — Protest — Notice of Dishonor — Certifica- 
tion of Check — Holder of Negotiable Paper — Defense That 
May be Set up Against Holder — Real Defenses — Practical 
Questions on Bills and Notes. 73-98. 

CHAPTER VIII— SALES OF PERSONAL PROPERTY 

What 'is a Sale of Personal Property — The Contract of Sale — 
Part Payment — Acceptance of Goods — When Title Passes — 
Bargain and Sale — Agreement to Sell — Duties of the Seller 
— As to Title — As to Possession — As to the Thing Con- 



COMMERCIAL LAW. Ul 



tracted For — Duties of the Buyer — The Rights of the 
Seller — Sellers Lien — Stoppage in Transit — Notice Required 
— Bill of Lading — Rights of the Buyer — Breach of War- 
ranty — Practical Questions on Sales of Personal Property. 
99-110. 

CHAPTER IX— GUARANTY AND SURETYSHIP. 

Distinction Between Guaranty, Suretyship and Indorsement — 
Necessary Form and Requisites of Guaranty — ^Who May 
Act as Guarantor or Surety — Classes of Guarantees — 
Guaranty of Collection and Guaranty of Payment — Demand 
and Notice — Rights of the Guarantor — Rights of Surety 
After Payment of Debt Against the Principal — Right of 
Surety Against the Creditor — Contributions of Co-Suretys — 
Discharge of the Surety — Practical Questions on Guaranty, 
and Suretyship. 111-121. 

CHAPTER X— INSURANCE. 

"What is Insurance — Fire Insurance — Insurable Interest — Rein- 
surance — ^Warranty and Representation — Life Insurance — 
Insurable Interest — Representation, Concealment, and 
Warranty in Life Insurance — ^Waiver and Estoppel — Marine 
Insurance — Measure of Indemnity — Practical Questions on 
Insurance. 122-130. 

CHAPTER XI— SHIPPING. 

<I!ontract of Shipping or Affreightment — What is a Charter Party 
Bill of Lading — By Whom Issued — Operation and Effect of 
the Bill of Lading — Transfer of Title by Indorsement of 
Bill of Lading — Salvage — Bottomy or Maritime Loans — 
Rules of General Average — Practical Questions on Ship- 
ping. 131-138. 

CHAPTER XII— BAILMENTS. 

■What is a Bailment — Bailor and Bailee — Distinction Between 
a Bailment and a Sale — Goods taken on the Installment 
Plan — Division of Bailments — Examples of Bailments of 
the First Class — The Degree of Care Required — Use of the 
Property — The Degree of Care Required in Second Class o 
Bailments — Degree of Care and Responsibility in the Third 
Class of Bailments — The Pledge or Pawn — Collateral 
Security — Pledge Distinguished from Chattel Mortgage — ■ 
What May be Pledged and for What — ^What May Not be 
Pledged — Degree of Care Exacted for Pledge — Right of 
Possession of Pledge — Duty of Pledgee to Return — Reme- 
dies of the Pledgee — Pawnbrokers — The Hire of Chattels for 
Personal Use — Keeping or Storage — ^Warehousemen — ^Ware- 
housemen's Lien — Warehouse Receipts — Common Carriers 
— ^What is a Common Carrier — ^Who Are Common Carriers 



IV COMMERCIAL LAW. 



— ^When Common Carriers May Refuse to Carry Goods — 
Liability of Common Carriers — Reason for the Liability — 
When the Rule of Liability Does Not Apply^ — Common 
Carrier's Lien — Telegraph Companies — Duty of the Com- 
pany — Stipulations in Contract Limiting Liability — Inn- 
Keepers — Who Are Inn-Keepers — ^Who is a Guest — 
Inn-Keeper's Liability for the Effects of their Guests — 
Inn-Keeper's Lien on the Goods of His Guest — Practical 
Questions on Bailments. 139-164. 

CHAPTER XIII— PARTNERSHIP. 

What is a Partnership — Firm is Not a Legal Entity — Formation 
of Partnership — Articles of Agreement — Competent Per- 
sons — Lawful Purpose — Business Owned in Common — 
Classes of Partners — Business Carried on for Common Bene- 
^ fit — Powers of Partners — Firm Name — ^What Names May 
be Adopted — Right to Use the Firm Name as a Trade 
Name — The Property of the Firm — Partners Interest in Firm 
Property — Partnership Real Estate — Termination of Part- 
nership — By Act of the Parties — By Operation of Law — 
Notice of Dissolution — Distribution of Firm Property upon 
Dissolution — Proportion of Profits and Losses — Limited Part- 
nership — How Formed — Dissolution and Notice — Practical 
Questions on Partnership. 165-181. 

CHAPTER XIV— JOINT STOCK COMPANIES. 

What are Stock Companies — Joint Stock Companies Distin- 
guished from a Partnership — From a Corporation — Rights 
and Liabilities of the Members — Dissolutions of Joint Stock 
Companies — Practical Questions on Joint Stock Companies. 
182-185. 

CHAPTER XV— CORPORATIONS. 

What is a Corporation — Public and Private Corporations — 
Nature and Purpose — Power and Rights of Corporation — 
Creation of Corporations — First Step — Second Step — Third 
Step — Promoters — Who is a Promoter — Contracts of Pro- 
moters — Promoters Relation to the Corporation — Capital 
and Capital Stock — Classes of Stock — Subscription of Stock 
— ^Watered Stock — Certificate of Stock — Transfer of the Stock 
— Lost Certificate of the Stock — Management of the Corpor- 
ation — Meetings — Cumulative Voting — Officers and Agents 
of the Corporation — The Board of Directors — Liabilities 
of the Directors — Property and Contracts — Real Property — 
Personal Property-Contracts-Accommodation-Parties-Ultra 
Vires Acts of the Corporation — Liability of Shareholders — 
Dividends — Stock Dividends — ^Who Owns the Dividends — 
Practical Questions on Corporations. 186-213. 



COMMERCIAL LAW. 



CHAPTER XVI— AGENCY. 



Definition of Agency — Who is an Agent — Distinction Between 
Agent and Servant — Who May Act as Principal — ^Who May 
Act as Agent — Appointment of Agent — Express Appoint- 
ment by Parole and in Writing — Agency by Estoppel — 
Agency by Necessity — Agency by Ratification — General or 
Special Agents — Attorney at Law — Attorney in Fact — 
Brokers — Factors — Shipmaster — Bank Cashier — Auction- 
eers — Termination of the Agency — By Agreement — By Act 
of Either Party — By Operation of Law — Agency Coupled 
With an Interest — Notice of Termination — Obligation of 
Principal to Agent — Obligation of Agent to Principal — 
Principal's Liabihty for Agents' Acts — What is the Appar- 
ent Scope of the Agents' Authority — Liability for Agent — 
Torts — Criminal Liability — Agents' Liability — Practical 
Questions on Agency. 214-234, 



CHAPTER XVII— REAL PROPERTY. 

Distinction between Real and Personal Property — Land — Fix- 
tures — Real Fixtures — Chattel Fixtures — What Fixtures 
are Removable — Intention — Character of the Annexation — 
Severance— Constructive Annexation — Nature of Fixtures — 
Trade Fixtures — Domestic Fixtures — Party Making Annexa- 
tions — Time of Removal — Estate — Estate in Fee-Simple — 
Estates Tail — Estate of Life — Estate for Years — Estate at 
Will — Estates by Dowers — Estate of Curtesy — Acquire- 
ment of Real Estate — Conveyance of Real Property — 
Requisites of a Deed — Various Kinds of Deeds — Recording 
the Deed — Mortgages — Definition of a Mortgage — Mortgage 
is a Lien — Rights and Liabilities of the Mortgagor — Assign- 
ment of Mortgage — Satisfaction of the Mortgage — Fore- 
closure of the Mortgage — Practical Questions on Real 
Property. 235-259. 

CHAPTER XVIII— BANKRUPTCY. 

Purpose of Bankruptcy Laws — ^Who May Apply to be Ad- 
judged a Bankrupt — Voluntary Proceedings — The Inven- 
tory and Schedules — Involuntary Proceedings — Acts of 
Bankruptcy — 1st. Fraudulent Conveyance — 2d. Giving 
Creditors Preference — 3d. Assignment for the Benefit of 
Creditors — 4th. Removal or Concealment of Property — 
5th. An Admission by the Debtoi' — Creditor's Petition — 
Inventory and Schedules — Exempt Property — Subsequent 
Proceedings — Compositions — Discharge of the Bankrupt- 
Effect of a Discharge — Practical Questions on Bankruptcy. 
260-286. 



VI COMMERCIAL LAW. 



CHAPTER XIX— ESTATE OF PERSONS DECEASED. 

Definition of a Will and Codicil — Form of a Will — ^Who May 
Make a Will — Probate of Wills — Intestacy — Executors and 
Administrators — Appointment of Executors and Adminis- 
trators — Power and Duty of Executors and Administrator 
— Payments and Debts of Legacies — Final Accounting of 
Executor or Administrator — Preparing the Account — Com- 
missions and Expenses Allowed in Administrating the 
Estate — Practical Questions oh Estates of Persons De- 
ceased. 287-307. 

CHAPTER XX— LANDLORD AND TENANT. 

How the Relationship is Created — The Lease — ^What May be 
Leased — Rights of the Landlord — Rights of the Tenant — 
Right of the Tenant to Remove Fixtures — Practical Ques- 
tions on Landlord and Tenant. 308-316. 

CHAPTER XXI— MECHANICS' LIEN. 

Definition and Object — Property Subject to the Lien — Priority 
Between Mechanics' Liens and Other Encumbrances — How 
the Lien is Perfected — Contractor, Sub-Contractors and 
Materialmen — Enforcement of the Lien — Lis Pendens — 
Practical Questions on Mechanics' Lien. 317-323. 

APPENDIX— ANALYTICAL TABLES. 

Private Rights and Torts which Result from their Breach — 
Personal Rights — Absolute Rights — Relative Rights — Per- 
sonal Property — Its Sub-Di^asion — How Title is Acquired — 
Estates as to Time, Duration, Number. 324-330. 

GENERAL REVIEW. 

Fifty Practical Questions Designed for a General Review. 331- 
346. 



CHAPTER I. 

LAW IN GENEEAL. 

What is La^v. 

Law in its broadest sense, means a rule of action or 
conduct, prescribed by a superior, which the inferior 
is bound to obey, and in those creatures that have 
neither the power to think, nor to will, such rules must 
be invariably obeyed so long as the creature itself sub- 
sists, for its existence depends on that obedience. These 
rules would be regarded as the law of nature. 

In this volume we will consider the rules of human 
action and conduct, that is, the precepts by which man 
the highest of all creatures, being blessed with both rea- 
son and free will, is commanded to avail himself of 
these faculties to regulate his behavior. 

Why Law is Necessary. 

From the first formation of society can be traced the 
various rules which time and civilization have devel- 
oped into fixed laws of conduct, in order to promote the 
fiocial welfare of the body adopting them. 



10 COMMERCIAL LAW. 

A prominent writer treating of the necessity for 
law says, " If a man were to live in a state of nature 
there would be no occasion for any other laws than the 
law of nature and the law of God. Neither could any 
other law possibly exist, for a law always supposes some 
superior who is to make it; and in a state of nature, we 
are all equal, without any other superior but Him who is 
the author of our being. But man was formed for soci- 
ety, and, as is demonstrated by the writers on this sub- 
ject, is neither capable of living alone, nor indeed has 
the courage to do it." Since man forms a component 
part of society, it becomes necessary that out of consider- 
ation for the comfort, peace, and well-being of the other 
members of the community, he should do certain things, 
and refrain from doing certain other things, and thus 
promote the best interests of the whole body. The 
adoption of such rules of conduct forms the basis for 
the laws governing the entire community. 
Enforcement of Laws. 

It is readily seen, that while laws may be enacted for 
the regulation of the conduct of the individuals com- 
prising the social body, yet such laws unless capable of 
being enforced can have no beneficial effect, for from 
our very understanding of law, it must be a rule of con- 
duct prescribed by a superior and which the inferior is 
bound to obey, the superior must be in a position to en- 
force obedience. In other words, an executive power 
aside from the legislative power. Every law enacted 
therefore must contain some provision as to the en- 
forcement, otherwise it is a nullity. 
Municipal Law. 

Municipal law is defined to be a rule of civil conduct 
prescribed by the supreme power in a state commanding 
what is right, and prohibiting what is wrong. While 



COMMON LAW. 11 

the natural and moral laws regard man as a creature 
and point out his duty to himself and to his neigh- 
bor considered as an individual, municipal or civil law 
regards him also as a citizen and bound to other duties 
towards the community: duties which he must partici- 
pate in, because he also enjoys the rights and benefits of 
a common union. 

Law Merchant. 

The law merchant has been defined as the general 
body of commercial usages in matters relative to com- 
merce. It is a system of law which does not rest exclu- 
sively on the positive institutions and local customs of 
any particular country, but consists of certain princi- 
ples of equit)^ and usages of trade, which general con- 
venience and a common sense of justice have estab- 
lished, to regulate the dealings of merchants in all the 
commercial countries of the world. 
Common Law. 

By the common law is meant, that system of law 
which has prevailed in England and in this country and 
includes those principles, usages, and rules of action 
applicable to the government and security of persons 
and of property which do not rest for their authority 
upon any express or positive declaration of the will of 
the legislature. It designates the unwritten, as distin- 
guished from the written law. The common law is also 
known as, " that law which derives its force and author- 
ity from the universal consent and immemorial practice 
of the people." 

In the United States the common law has been 
adopted as the foundation of jurisprudence in nearly all 
the states ; while many of the most important and useful 
common law principles have been embodied in the Con- 
stitution of the United States and of the several states. 



is commercial law. 

Common Law Couets. 

The courts which enforced the common law were 
known as common law courts. These courts proceeded 
in a very tedious and slow manner in enforcing the 
law. They abounded in technicalities. From the ear- 
liest formation of these courts, the custom grew to report 
the cases that were tried in them. These reports em- 
bodied a statement of the question involved; the legal 
argument of counsel for each of the litigants; and the 
decision of the judge with the reasons therefore. In 
this way the reports acted as precedents and were 
guides for the determination of similar questions that 
might be in dispute. 

The convenience of this method of procedure cannot 
be too fully appreciated. It resulted in fixing a rule of 
law upon which the counsellors might rely in giving sug- 
gestions and legal advice to their clients. 

As time went on, these precedents accumulated and 
in many instances outlived their usefulness, for while 
they may have been well suited to the customs and busi- 
ness usages of the times in which they grew up, mod- 
ern developments in the affairs of mankind required 
either, the modification or the complete abolishment of 
these precedents. The first method is accomplished by 
the judges themselves, who becoming convinced that a 
precedent as applied to a particular case coming before 
them works a great injustice, either over-rule the pre- 
cedent applicable to this case, or distinguish it from 
one already adjudicated. Then again the precedent 
could be abolished entirely by act of the legislature, 
which, when it became necessary, would pass a law cor- 
recting the objectionable precedent. Such enactments 
of the legislature form what is known as the statutory 
law. 



judicial decisions federal and state courts. 13 

Equity Courts. 

The equity courts originally exercised jurisdiction 
over equitable rights only, because the other courts re- 
fuse to recognize equitable rights. But these equity 
courts never interfered with the other courts and in turn 
were never interfered with. So that now the equity 
courts exercise jurisdiction over both legal as well as 
equitable rights. Equity courts have the power to in- 
vade at will the provinces of other courts because 
equity jurisdiction is a prerogative jurisdiction and is 
exercised in legal contemplation by the sovereign. Its 
object in obtaining jurisdiction over rights which it 
is the province of the other courts to protect, is to 
promote justice by supplying defects in the remedies 
which the courts of law afford. The extent of this 
jurisdiction is co-extensive with its objects, equity as- 
suming jurisdiction over legal rights so far as justice 
can be promoted thereby. 

It often happens that the protection afforded by the 
courts of law to legal rights is insufficient and inad- 
equate, and equity courts are able to supply these short- 
comings, chiefly because it has a different method of 
protecting these rights, and where justice requires ic, 
compulsion or coercion is used by Equity Courts to en- 
force its mandates. 

Judicial Decisions as Precedents Between Federal 
AND State Courts. 
United States Courts acquire jurisdiction because the 
plaintiff and the defendant are citizens of different 
states or countries, or because the question in dispute 
involves the laws of the United States or of the Consti- 
tution. The United States Supreme Court is the ulti- 
mate tribunal of appeal, whether the case is from a 
State court or an inferior United States court. 



14 commercial law. 

The United States Supreme Court is Independent 
OF the Decisions of the State Court Under 
These Circumstances. 

1. Where the State court decisions are inconsistent 
with the decisions rendered by the United States Su- 
preme Court on constitutional law or involving con- 
struction of Federal Constitution or Treaties or Acts of 
Congress or settlement of Federal questions. 

2. Where the question is one of general commercial 
law, not depending on State statute or usage. 

3. Where the question is one depending on general 
public policy. 

4. Where the question is one of general equity 
jurisprudence. 

The State Courts are Absolutely Bound by the 
Decisions of the United States Supreme 
Court Even if They Have Views That are 
Eadically Different. 

Where the question arises under the Constitution or 
the laws of the United States, or treaties made by 
authority of the National Government. Decisions on 
questions other than those herein stated are not binding 
on State courts, but, nevertheless, such decisions are 
entitled to great respect. 

The United States Supreme Court is bound by the 
settled construction placed upon the statute of a State 
by the State court, and ought to adopt and apply them, 
unless involving a question of Federal law, such as 
whether the statute itself, conforms to the Constitution 
and laws of the United States, then, if as yet the State 
courts have not given any interpretation or decision, or 
there are conflicting decisions on the statute, the United 
States Supreme Court will give its own. 



UNITED STATES COURTS. 15 

The decisions of one State Court are not binding on 
the courts of another state, but, nevertheless are en- 
titled to great respect in similar questions ariiing in 
the courts of the latter state. 



CHAPTER II. 

LAW IN GENEEAL (CONTINUED). 

Substantive and Adjective Law. 

Substantive law is the law of primary rights and 
duties. These rights and duties do not arise from in- 
juries or from violation of other rights and duties. In 
60 far as the law defines what these rights and duties 
are, it is termed substantive law. 

Adjective law is remedial law; so far as it provides 
B method of aiding and protecting the enforcement of 
rights and duties^ it is a law of procedure. 

Eights. 

Bights are one man's capacity of influencing the acts 
of another by means not of his own strength, but by 
the opinion or force of society. When we say a man has 
a right to do a certain thing; to the possession of an 
article; or to be treated in a certain manner, it implies 
that the public will consent to his doing these things, 
and object to anyone interfering with him in so doing. 
So we may say that right is a name given to an ad- 
vantage that has the public consent. A legal right 
would be such as is recognized by law and enforced by 
the power of the State, the validity of a right is the 
force lent to it by the State, thereby causing its obli- 
gatory character. 



ABSOLUTE AND RELATIVE RIGHTS. 17 

The character of the elements from which a right 
results is as follows: 

First. A person in whom the right resides, who is 
clothed with the right or who is benefited by its exist- 
ence. 

Second. An object over which the right is exer- 
cised. This object may be a physical thing or what the 
law chooses to treat as such. 

Third. Acts or forbearances which the person in 
whom the right resides is entitled to exact. 

Fourth. A person from whom the acts and forbear- 
ances can be exacted, against whom the right is avail- 
able, whose duty it is to act or forbear for the bene- 
fit of the subject of the right. 

Absolute and Eelative Eights. 

An absolute right is a right that is born with an indi- 
vidual, while a relative right is one springing from and 
dependent upon an absolute right, e. g. Thus B's right 
to the enjoyment of life is an absolute right, and there 
is a duty or obligation imposed on the rest of the world 
not to interfere with his right: but if A, despite that 
right and his obligation not to interfere with it, should 
by some negligent act cause B injury and put B's life 
in danger, there would be vested in B a relative right, 
a right to damages and compensation for injuries re- 
ceived, which right has sprung into existence on the 
violation of B's absolute right by A. 

Absolute rights are divided into rights of ownership 
and personal rights, while relative rights imply both 
a right on one side and an obligation or duty on the 
other. The term obligation as used here implies both 
the duty and the right. 

The entire sum of human rights are the absolute 
rights, and these are never increased by the addition 



18 COMMERCIAL LAW. 

of relative rights. For it is possible to create innu- 
merable relative rights founded on one absolute right, 
and the decrease of the latter is commensurate with the 
increase of the former. 

Classification of Eights. 

Eights are generally divided into two classes, namely, 
rights in Eem, and rights in Personam. Eights in 
Eem are rights existing in a person with respect to 
an article or subject of property inherent in his rela- 
tion to it, implying complete ownership with posses- 
sion, and available against the world. Eights in Per- 
sonam, on the other hand, are rights against a person, 
a right which gives its possessor the power to oblige 
another person to give or procure, to do or not ta 
do a certain thing. Thus, for example, take the rights 
in Personam arising from the formation of a con- 
tract made by A with B for the purchase and sale 
of B's horse, and we would have the following: 

1. A would have a right to the horse in question as 
against B, as long as the ownership still resides in B. 

2. A right to force B to deliver the horse in the 
specific performance of his contract or give satisfac- 
tion if it is detained. 

3. A right to demand satisfaction for the breach of 
the contract if B sells and delivers the horse to an- 
other buyer. 

4. As against a stranger (buyer) A has no right 
whatever to the horse, so that A cannot force the buyer 
to yield the horse to him, nor to make satisfaction for 
detaining a thing of A's. 

5. Suppose, on the other hand, B delivered the 
horse to A, as per contract, then the horse becomes A's, 
and he now has a right in Eera, a right to the thing de- 
livered as against all mankind. 



CREATION OF EQUITABLE RIGHTS. 19 

6. In consequence of the fifth right, A can com- 
pel the restitution of the horse from any person who 
may take and detain it. 

7. A can force any one who does take and detain 
the horse to give satisfaction to him for injury to his 
right of ownership. 

Equitable Eights. 

The different methods by which equity creates equita- 
ble rights are : 

I. Sub-obligation 
II. Mortgages 

III. Subrogation 

IV. Marshalling of assets. 

1st. Where from one legal right an indefinite num- 
ber of equitable rights and obligations are created. 
Thus by diagram let us suppose that A is the legal 
owner of a right and he assigns to B, B to C, C to 
D, etc. 

(A) (B) (C) (D) 

Then we will have the following : 
A is bound to B. 
B is bound to C. 
C is bound to D. 
D to no one (nobody after him). 

Thus, we have as many equitable obligations created 
as there are men in line, less 1 or 3 equitable obliga- 
tions implying the same number of equitable rights. 

2nd. Mortgages. Where A mortgages to B (1st. 
mortgage), we have created an equitable right of re- 
demption in A and equitable obligation to reconvey in 
B. On the second mortgage to C, A gives his first equit- 
able right to C, and in turn gets a new equitable right 



^0 COMMERCIAL LAW. 

of redemption of the first equitable right from C, who is 
under equitable obligations to reconvey same on pay- 
ment. This may go on any number of times. 

3rd. Subrogation. A is the debtor and is under 
obligations to B, the creditor, to the sum of $5,000. C, 
who is surety for A, has also bound himself to B for the 
payment of the amount due by A. The time for pay- 
ment has come. A does not pay. Then B has the 
option of suing either C or A. Suppose he does sue C 
and recovel'S from him, thus releasing A of his obliga- 
tion: but this is surely unjust, so equity steps in and 
says, we will not say that C has paid A^s obligation but 
simply bought his debt, and so equity creates an equit- 
able right in C against A for the sum paid. 

4th. Marshalling of Assets. 





$5,000. $1:0,000. 

A owns two houses, X and Y, and gives a mortgage 
for $5,000 covering both houses to B. Later on A gives 
a second mortgage on house Y to C for $10,000. Sup- 
pose the mortgages are foreclosed. Then B has a right 
to obtain the value of his mortgage from both X and Y 
irrespective of C's claim. But equity again comes in 
and says, if B can get full value out of house X, he 
should go there, and leave house Y for the benefit of C. 

Eemedies. 

Remedies are necessary because of the violation of 
rights, and their object is the protection of rights by 



REMEDIES. 21 

means of actions or suits. An action may protect a 
right, first, by preventing a violation of that right; 
second, by compelling specific reparation when violated; 
third, by compelling compensation in money when it is 
violated. Remedies are applied strictly to the second 
and third subdivisions, for a remedy means a cure and 
not a prevention, but as commonly used in law, it 
means both cure and prevention. Remedies, like rights, 
are either legal or equitable. The division of remedies 
into legal and equitable is not co-ordinate with the cor- 
responding division of rights, for the remedy afforded 
for the protection of equitable rights are all equitable 
remedies, and the remedy afforded for the protection of 
legal rights may be either legal or equitable, or both. 

The only remedies that a common law court can 
award are damages. The common law cannot compel 
specific reparation. Very often the awarding of dam- 
ages will be an inadequate remedy for the right that 
has been violated, and it is then that a court of equity^ 
comes into use to assist the common law court in 
furthering justice by the means at its disposal. 

Thus, for an example, A by certain actions on his 
part has conveyed to B's mind beyond a doubt the im- 
pression that A, by his preparations to sink a deep 
well in the vicinity of B^s house, would thereby endan- 
ger B and his possessions. Now it is of the utmost im- 
portance to B that A should not proceed with his work. 
Common law, however, can ony assist him by the award- 
ing of damages for the injury he has received, by A 
going on with the work : but B does not want damages : 
he wishes to compel A to stop his work, not to go on 
with it. He then appeals to equity, and if he shows 
sufficient cause, equity will grant an injunction to stop 
A from going on until the case can be tried. Thus, we- 



22 COMMERCIAL LAW. 

see how equity by the means at its disposal can supply 
the defects in the common law remedy. 

So also, if a person has no legal right, he cannot 
come before equity and claim an equitable right. 

Actions in Personam. 

Such actions are founded upon torts, being actual or 
threatened, or upon breaches of personal obligation. 
The person against whom the action is brought is fixed 
and determined by law, to wit : the person who incurred 
the obligation, or who committed, or threatened to com- 
mit the tort. This is called an action in Personam, 
because it gives relief against the defendant or the 
person sued, and the one suing has no claim against any 
res or thing. 

Actions in Eem. 

Such actions are founded upon the breach of a real 
obligation or upon the ownership of a corporeal thing, 
movable or immovable, so that it gives relief against 
the res or thing itself, as, for example : an action brought 
in replevin to recover a watch withheld by the defend- 
ant from the owner. If the person recovers in this 
action, the order of the Court would be for the delivery 
of the watch to the one who brought the action. This 
kind of an action is brought against any person who is 
in possession of the res or thing claimed by the person 
who brings the action. 

Property. 

Property is what one owns; does what he likes with 
it; things which are the objects of ownership. Owner- 
ship is the right of exclusive possession in something, 
and if deprived of such ownership, it gives the right to 
maintain and recover such possession. Absolute owner- 



PROPERTY. 23 

ship is the right of free, as well as exclusive enjoyment 
of a thing, and the owner has a right to alter, destroy, 
or dispose of the thing, his only limitation being, that 
in so doing he must not violate the rights of others. 
Property may be divided into things corporeal, e. g., 
tangible objects, such as land, chairs, money, stocks, etc., 
and things incorporeal, e. g., intangible objects, such as 
legal relations and property rights. Property is also 
divided into real and personal. Eeal property is such 
as has the characteristics of immovability, permanent 
location, such as land, and that arising out of land. 
Things real are land, structures, fixtures, tenements and 
hereditaments. Personal property is every other thing 
that has not the above characteristics, such as money, 
jewels, etc. 

QUESTIONS 0^ LAAV m GENEEAL. 

1. What is the object of law in general? 

2. What difference is there between substantive and 
adjective law? 

3. Over what do equity courts acquire jurisdiction? 

4. Why are equity courts important in furthering 
the cause of justice? 

5. Give four examples of how equity creates equit- 
able rights. 

6. Of what use are judicial precedents? 

7. Over what matters has the United States Court 
jurisdiction ? 

8. What are relative rights? What are absolute 
rights? Give examples of each. 

9. What is known as the common law? 

10. A and B are the owners of adjoining mines. 
There is a small stream of water running through B's 
mine. B starts to dig an outlet for the water through 



24 COMMERCIAL LAW. 

the wall separating his mine from A's, so that the water 
would flow into A^s mine, which, being on a lower level, 
would suffer great damage. To what court should A go 
for relief and what relief could he get? 



CHAPTER III. 

CONTEACTS. 

The Formation of a Contract. 
Definition. 

A promise or agreement which may be enforced at 
law is a contract. An agreement is an act in law, where- 
by two or more persons declare their consent as to an act 
or thing to be done by them, or to forbear doing a cer- 
tain act for their own use, or the use of others. 

Certain things are essential to constitute a contract, 
viz: (a) two or more persons having a legal capacity 
to enter into contracts; (b) a lawful subject matter to 
be contracted for; (c) a consideration for the promises; 
(d) a mutual assent of the parties. 

Offer and Acceptance. 

Persons may declare their consent in one of two ways : 
they may do it in a spoken or written form of words, as 
in cases where contracts are reduced to writing and 
signed at the time by both parties, or they may declare 
their contract by a proposal or offer made by one and 
accepted by the other. 

A proposal and acceptance may be expressed when 
conveyed by words, or implied when conveyed by con-^ 
duct. An example of the latter is where a person boards 



26 COMMERCIAL LAW. 

a street car. The car running along the public highway 
amounts to a proposal to carry any person boarding it, 
to any point of destination along its route. A person 
gets into the car, pays his fare, and thus accepts the 
offer. The contract is formed without a word being said 
on either side. 

The offer and acceptance must be made with the inten- 
tion of forming contractual relations, and must be com- 
municated. An offer need not be made to an ascertained 
person, but must be accepted by an ascertained person 
before there is a contract. Thus an auctioneer offers 
his goods for sale at an auction, to all the persons at- 
tending the sale, the highest bidder being the ascer- 
tained person, who finally accepts the offer. 

Another instance where an offer is made to an un- 
ascertained person, but with the intention that it shall 
be accepted by some definite, or ascertained person, is 
where A has lost his gold watch and offers a reward to 
anyone who will find and return it to him. B learns 
of the offer, finds the watch and returns it safely to A. 
By so doing, B, an ascertained definite person, accepts 
A's offer. He has performed his part and placed A 
under a contract liability to pay him the amount of the 
reward offered. 

An offer may be terminated by the lapse of a specified 
time ; or by the lapse of a reasonable time, for accepting ; 
or by failure to accept in the manner indicated in the 
offer ; or by death of either party before acceptance, and 
by the revocation before acceptance. 

An offer may be withdrawn or revoked by the offerer 
at any time before its acceptance. Where the right of 
withdrawal is not exercised, and the offer remains un- 
accepted, after a reasonable time, it will lapse. A makes 
an offer to B and stipulates no fixed time within which 



ACCEPTANCE. 27 

B ma}' accept. If B does not accept within a reasonable 
time, Avhicli will depend on the nature of the proposal, 
the offer will lapse and he may not afterwards take ad- 
vantage of it. The justice of this is apparent : it would 
be clearly unfair to expect a man to keep himself in a 
position to make good an unaccepted offer for an un- 
i-easonable length of time. 

Again, A makes an offer to B and agrees to keep the 
offer open for a specified time. The offer lapses if B 
allows the time to elapse without accepting it. Even 
where A agrees to keep the offer open, he may withdraw 
it at any time before acceptance, unless some considera- 
tion is given for his promise to keep the offer open. In 
such a case, A will be bound to keep his offer open for 
the full time agreed, and he may not withdraw it„ 

EeYO CATION OF AN OfEER. 

The revocation of an offer must be communicated be- 
fore acceptance. It must be brought to the knowledge 
of the person to whom, the offer was made, and this, 
before his acceptance of the same. If this is not done, 
his right to accept will not be affected. Sometimes the 
withdrawal is shown by acts. A makes an offer to sell 
his horse to B, and gives him a certain time in which to 
accept the offer. Before that time expires, however, he 
sells his horse to C. To avoid the probability of an ac- 
ceptance by B, A should notify him of the withdrawal 
of his offer. Of course, if B were present at the sale, 
the act would in itself give him sufficient knowledge 
that the offer to him was revoked. 

Acceptance. 

An offer accepted, makes a contract that is enforceable 
in law. The acceptance must be communicated, and 
from the moment of communication it becomes irrevoc- 



28 COMMERCIAL LAW. 

able. An acceptance must be absolute and identical 
with the terms of the offer; it must be communicated 
to the offerer in the same manner in which the offer 
was made, unless some other channel for communication 
is stipulated. A contract will then be concluded, and 
the legal liabilities arising from the contractual rela- 
tions, will be binding. If the acceptance is in any way 
equivocal, or conditional, there will be, not only no con- 
tract, but it will amount to a revocation of the offer at 
once, and the offerer will not be compelled to give the 
offeree a second opportunity to accept. 

A offers to sell his horse to B for $500 cash. B says, 
"I accept your offer." This is an absolute acceptance 
and a binding contract results. But suppose B says, "I 
will give you $250 cash and $250 in thirty days." This 
acceptance is not identical with the offer. B without 
accepting A*s offer for cash, is making a new offer to A 
to take half in cash and half in thirty days, and unless 
A accepts B's new offer, or counter-offer, there is no con- 
tract. But further than this : should A refuse to accept 
B's counter-offer, B may not reconsider and accept A's 
offer for cash. By giving his equivocal acceptance, or 
one not identical with the terms of the offer, B has lost 
his opportunity to accept A^s offer. He has, in effect, 
wiped it out as though it had never been made. Of 
course, there is nothing to prevent A from renewing his 
offer to B, or leaving it "open" to him. 

Communication of Offer and Acceptance. 

As we have seen, an offer must first be communicated 
to the offeree, who then communicates his acceptance to 
the offerer. If the offer is made by letter or telegram, 
the acceptance must be sent in the same way, by letter or 
telegram ; unless the offerer stipulates a different method 
of communication. 



INFANTS. 29 

Wliere the offer is made by letter or telegram, the 
offeree has no notice thereof until it has come into his 
hands. On the other hand, the general rule is, that as 
soon as the offeree has placed his letter of acceptance in 
the mail box, or his telegram of acceptance in the tele- 
graph agent's hands, the contract has been consummated 
and both parties are bound thereby. The effect will be 
the same if the letter or telegram of acceptance should 
miscarry and never reach the offerer's hands, unless 
this occurs through some fault on the part of the offeree. 
For this reason, a careful business man will always stip- 
ulate in his offer, that the contract shall not be binding 
unless he actually receives the acceptance within a defi- 
nite or reasonable time. 

Who May Enter Into Contracts. 

Capacity of Parties. 

There is a presumption that all persons have sufficient 
capacity to enter into and make contracts. Lack of ca- 
pacity m.ust be proven. That capacity may be affected 
by the infancy, lunacy, idiocy, drunkeness, marriage, 
legal status, or agency of the party. 

Infants. 

In England and in most of our states, a person can- 
not exercise full legal control over his person or proper- 
ty until he has arrived at the age of 21 years. In some 
states a woman's legal age is placed at 18 years. 

According to the best authorities, an infant may en- 
ter into a contract, and, upon coming of age, may ratify 
it, and thus make it binding, or, if he chooses, he may 
repudiate it, and he may properly and effectively set up 
his infancy as a defence to an action brought against 
him to enforce the contract. The contract therefore is 



30 COMMERCIAL LAW. 

said to be voidable on the part of the infant. He alone 
may exercise the right of repudiating the contract, and 
neither the other party, nor an outsider, may take ad- 
vantage of it. 

It is always best to get the ratification in writing. 
Some states making a writing necessary by statute. A 
simple statement is sufficient. The infant's right to 
repudiate his contract has certain limitations and modi- 
fications. For the necessaries of life, he must pay tho 
fair and reasonable value; and in some jurisdictions it 
is held, that if the infant has paid money on his contract 
and enjoyed the benefit thereof, or if he has sold his 
land and squandered the money, and then when he be- 
comes of age, repudiates his contract, he cannot recover 
the money back, nor the land. The weight of authority 
in the United States, however, is otherwise ; and the in- 
fant may recover back his money or land, even if he 
cannot restore the other's property in whole or in part. 

Necessaries of Life. 

Wliat are necessaries of life must be determined in 
each particular case. They are not limited to things 
absolutely essential to the infant's existence, but will 
include whatever is deemed essential to maintaining him 
in his particular degree and station in life. Food, medi- 
cal attendance, educational advantages, etc., are neces- 
saries, and even things, which while they may be luxu- 
ries are nevertheless useful and not out of proportion 
to the infant's means ; as a watch, cuff-buttons, etc. 

In imposing upon the infant a liability for the fail 
value of necessaries, the law has sought to protect his 
interests. For, if he were able to repudiate these con- 
tracts entirely, tradesmen would refuse to contract with 
him, thus subjecting him to hardship and inconvenience. 
In an action on such a contract, the tradesman must 



LEGAL STATUS I ALIENS. 31 

show what is the fair value of the necessaries furnished, 
and his recovery will be based on that, irrespective of 
the price promised by the infant. 

Lunatics^ Idiots and Drunkards. 

A lunatic, an idiot, or an habitual drunkard is a person 
non compos mentis. After a person has been judicially 
declared insane or an habitual drunkard, and a guardian 
or a trustee iias been appointed over him, all contracts 
made with him are absolutely void. Even when there 
has been no such judicial declaration, but a person is in 
such a condition as to be incapable of understanding 
what he is doing, and the other party knows that fact, 
the courts will generally annul the contract at the in- 
stance of the former on the ground of fraud. In some 
jurisdictions it is held that whether the other party 
knew the former's condition or not, the contract is void- 
able at the option of the former, unless he is unable to 
put the other party in substantially the same position 
as before the contract was performed. 

Married Women. 

Under the common law^, married women were held 
incapable of entering into contracts. Husband and wife 
were considered as one, and all business had to be trans- 
acted through the husband. But statutes have elimi- 
nated this theory, and married women may now contract 
the same as single women. 

Legal Status : Aliens. 

Aliens now have practically the same rights as citi- 
zens, but when two countries ar^ at war with one 
another, a citizen of the one may not make enforceable 
contracts with the other, unless he is residing in that 
country and that contract will not, in any way, aid the 
hostile operations of his countrymen. 



32 COMMERCIAL LAW. 

Agents. 

The contracts entered into by agents will be treated 
in the subject of agency. They must have express or 
implied authority to enter into the contract whereby 
it is sought to hold the principal liable. 

Form of Contract. 

The contract under seal is the formal contract at 
common law. The consideration in such an instrument 
is presumed and it becomes necessary for the side trying 
to break the effect of the instrument to show want of 
consideration. 

Simple contracts as distinguished from formal con- 
tracts, require a consideration to be valid. They may 
be either written or oral except such as are required by 
the Statute of Frauds to be in writing. 

There is a difference between the mode of proof of 
a written and a verbal contract. A written contract can- 
not be varied or contradicted by oral proof. 

A Legal Consideration. 

A legal consideration is absolutely necessary to the 
validity of every promise not under seal. It may be 
defined as some right, interest, profit, or benefit accru- 
ing to one party, or some forbearance, detriment, loss, 
or responsibility, given, suffered, or undertaken by the 
other. It is not necessary that the promisor receives any 
benefit; it is sufficient that the promisee sustain some 
forbearance or detriment to make a valid considera- 
tion. The consideration must be a valuable one. The 
law distinguishes between such, and a moral obligation, 
or a good consideration only, such as "love and affec- 
tion.^' The courts consider the latter generally, as no 
consideration. 



waiver of a legal eight. 33 

Unreal Consideration. 

To do, or a promise to do what one is legally bound 
to do, is not a valuable consideration, and a promise 
made to a public officer, as a consideration for doing 
what he is obliged by law to do, will not be enforced. 

If A owes a debt, he is legally bound to pay that debt 
in full, and his pa}Tiient of part of it, on his creditor's 
promise to accept it as payment in full satisfaction of 
the whole debt, will not debar the creditor from still 
maintaining a proper action for the balance. But if, 
instead of repaying the debt in money, A offers to give 
his creditor a diamond ring, or something else, in full 
settlement of his debt, and the creditor accepts the offer, 
it will be a valuable consideration for the creditor's ac- 
ceptance, because A was not legally bound to pay any- 
thing but money. 

Waiver of a Legal Eight. — Forbearance of a Legal 
Right. 

The abandonment or forbearance of any legal right 
is a valuable consideration; but if the right or claim 
be wholly unattainable at law, or if the claimant knows 
his claim is unfounded, the consideration fails. A 
promise to forbear from exercising a legal right will 
also be a valuable consideration. To be enforceable, 
the forbearance must be at the request of the promisor. 
At his own instance, A may perform work and services 
for B; and although B derives a benefit therefrom, he 
will not be held liable for the value of such services, 
even, if, after B learns of their performance, he prom- 
ises to remunerate A therefor. This would be, for the 
reason that A's services were not rendered as a consider- 
ation for B's promise and at his request. 



34 commercial law. 

Mutual Consent Necessaey. 

It is possible that in an agreement entered into 
between parties, there may be no real consent, for 
the consent may be affected by ignorance, fear, or some 
dependence, that exckides the freedom of action. If af- 
fected by ignorance, it may be because of a mistake not 
due to the other party, or if caused by an act of the 
other party, it may be without a wrongful intention, 
which would be a misrepresentation as distinguished 
from wrongful intention, which is fraud. 

Where the fear or dependence excluding freedom of 
action is not caused by the acts of the other party or 
relations between the parties, it is immaterial, but if 
caused by such acts it amounts to duress or coercion, 
and when caused by such relation it is known as undue 
influence. 
Mistakes in Contract. 

One or other of the parties may be mistaken as to the 
subject-matter or of the identity of the other party to 
the contract; or again the mistake may be mutual. In 
such cases the contract is invalid. A contracts with B 
for the purchase of the boat ^^ Auriole." There are 
two boats of that name, A having one in mind and B 
the other, so that there is no meeting of the minds and 
consequently, no valid contract. The same result fol- 
lows where A contracts with B for the purchase of his 
horse, but without the knowledge of either, the horse 
had died previous to the making of the contract. The 
subject-matter of the contract not being in existence, 
there can be no contract. The mistake must be as to 
the subject-matter itself. It matters not if the seller 
does not know the real value of the thing he is offering 
for sale and accepts a price much less, so long as there 
is a mutual assent, e. g., a meeting of the minds on the 



FRAUD 35 

thing contracted for, and the contract is valid in other 
respects. 

A misrepresentation is a misstatement of some fact 
prior to, or at the time of, making the contract. If the 
misrepresentation is false and made knowingly, it is 
fraud. If the misrepresentation is made innocently and 
prior to the making of the contract, forming no part 
thereof, it will not affect the contract; but if such 
misrepresentation is made at the time of making the 
contract, forming a part thereof, it amounts to a condi- 
tion, which if violated will render the contract voidable. 

Fraud. 

Fraud is a false representation of fact made with a 
knowledge of its falsehood, or a reckless disregard 
whether it be true or false, with the intention that it 
should be acted upon by the complaining party, and 
actually inducing him to act upon it. This definition, 
while comprehensive, might sometimes be misleading, 
because a fraud may be perpetrated by merely keeping 
silence; by suppressing facts which would put an en- 
tirely different coloring to the situation. One may 
own much property, but yet owe debts equally extensive ; 
and if, in attempting to gain credit he makes representa- 
tions of what he owns, but keeps silent and suppresses 
facts as to what he owes, it is fraud. But a mere failure 
to disclose all that one knows bearing on the subject- 
matter of the contract is not fraud. The distinction is 
sometimes very close between such a non-disclosure and 
a suppression of facts which should be revealed. The 
parties must always take reasonable care in making 
the contract. It is necessary that the false statement 
be one of fact and it must be acted upon. 

Fraud in the making of the contract will render it 
voidable on the part of the defrauded party only. He 



36 COMMERCIAL LAW. 

may either affirm the contract and sue the deceiver for 
damages which he may have suffered by reason of the 
fraud; or, he may avoid the contract and recover back 
what he paid under it. In avoiding the contract, how- 
ever, the defrauded party must not be guilty of laches ; 
he must act promptly upon discovering the fraud. He 
must also put the other party in the same position he 
held before the contract was made, otherwise he cannot 
maintain his right to avoid it. 

Duress. 

Duress consists in actual or threatened violence or 
imprisonment. The subject of it must be the contract- 
ing party himself, or his wife, parent, or child, and it 
must be inflicted or threatened by the other party to the 
contract. 

Duress of the person by actual or threatened viol- 
ence is a compulsion through rational fear of the loss 
of life; and there is clearly no meeting of the minds, 
if one chooses rather to enter into the contract than 
to lose his life. 80 also, when one makes a promise 
under threats of assault and battery, or of maiming. 
Duress of the person by actual or threatened imprison- 
ment is a compulsion through illegal restraint of one's 
personal liberty. And in many of our states (though 
the imprisonment would be legal) if the process by 
which imprisonment is obtained is sued out maliciously, 
or the threat to imprison made for the purpose of com- 
pelling one to enter into a contract, it will be held to 
have been made under duress. 

Another form of duress is duress of the party's goods. 
This occurs when one party enters into a contract for 
the purpose of saving his goods from destruction, or 
from being improperly detained by another, who re- 
fuses to give them up to the owner. 



UNDUE INFLUENCE. 37 

A contract made under duress is voidable on the part 
of the coerced. It is not necessary that the threat be 
directed against the contracting party himself ; the same 
result follows when the contracting party is coerced 
into making the contract by threats directed against a 
husband, wife, parent, or child. 

Undue Influence. 

This is an unconscientious use of one's power over 
another's distress, or weakness of mind, and if one holds 
such a position of trust or authority, as will give rise 
to the presumption of his having made such uncon- 
scientious use of the power of his position, for his 
own benefit, the transaction will not stand, unless he can 
disprove the presumption by contrary evidence prov- 
ing it to have been fair and just. Such relations of 
trust or authority exist between an attorney and his 
client, a physician and his patient, an accountant and 
his client, a guardian and his ward, a parent and his 
child, etc. Any abuse by the dominant party, of his 
influence over the other, or any betrayal by him, of the 
confidence reposed in him by the other will be an exer- 
cise of undue influence. 

The effect of undue influence upon the contract is 
substantially the same as fraud, and the contract is 
voidable at the option of the party so influenced. In 
fraud a misstatement of a fact is one of the elements; 
while the undue influence exercised is the vitiating ele- 
ment in a combination of circumstances which termin- 
ate in the making of a contract. Unless it is clearly 
shown that the mind or will of the injured party is en- 
tirely relieved from the dominant influence of the 
other, or that he has been furnished with the fullest in- 
formation other than that upon which he entered into a 
tract, the contract will not be binding on the injured 



38 COMMERCIAL LAW. 

party; not even if he has affirmed or received bene- 
fits under it. The reason for this is clear, because while 
one is still under the undue influence which has con- 
trolled his acts, or laboring under the imperfect knowl- 
edge upon which he entered into the contract, he is 
not in a position to give his free assent to the contract, 
nor to afifirm it, therefor, while so situated the con- 
tract will not be binding on him. 

Legality of Object. 

An agreement complete in every other respect may still 
be unenforceable in law because its object is either con- 
trary to a positive law which makes it illegal, contrary 
to a positive morality, contrary to the common weal 
and against jDublic policy. 

A contract to do something which is illegal, or 
against public policy, will not be enforced. If a statute 
prohibits a certain act, the law will not be found so 
futile as to enforce a contract to do that act. A con- 
tract to commit a murder, to cheat, or any contract 
to do what is punishable criminally, is absolutely void. 
'Not will a gaming or wagering contract, or a con- 
tract in restraint of trade, be enforced. Contracts to in- 
fluence legislative, administrative, or executive action, 
to purchase or sell public office, to influence elections, 
and contracts against general good morals are all il- 
legal and will not be enforced. 

Assignment of the Contract. 

An assignment of a contract may be made by act of the 
parties themselves, or by operation of law. When made 
by the parties, only their rights under the contract may 
be assigned; they cannot assign their liabilities. If 
Macy & Co., sold merchandise to Jones, they would 
expect him to pay for the same and he would be un- 



NOTICE OF ASSIGNMENT. 39 

der obligations to do so. Jones would not be permitted 
to assign this liability to Smith who may be worthless 
or insolvent and whom Macy & Co., do not care to 
trust. Macy & Co., have entered into the contract with 
Jones because they have confidence in his good character 
and in his ability to pay. They have not entered into 
contract with Smith and therefore Jones will not be 
permitted to assign his liability without the consent 
of Macy & Co. 
Assignment of a Eight. 

On the other hand one may assign his rights under 
the contract, because no loss is thereby caused to the 
other party. In the example above, suppose Macy & 
Co., should assign their right to receive payment for the 
merchandise to Harvey & Co. Jones is still liable for 
the price and loses no rights by paying the debt to Macy 
& Co.'s assignee. This assignment of a right is often of 
great convenience in commercial affairs. A person may 
have many such outstanding debts owing to him but in 
great need of ready cash, which he may be able more 
readily to obtain by assigning one or more of these 
debts to some one willing to take them up. Such assign- 
able rights are now looked upon as property rights and 
action may be brought upon them in the assignee's 
name. 
Notice of Assignment. 

For his own protection, an assignee, who has paid for 
a claim, should notify the debtor of the assignment. 
If he does not, and the debtor pays the claim to the 
original creditor, that is, the assignor of the claim, the 
debtor will not be compelled to pay over again to the 
assignee. It would be unjust and unreasonable to make 
the innocent debtor suffer because of the assignee's own 
negligence. 



40 



COMMERCIAL LAW. 



The assignee's rights in the claim are exactly the same 
as those of his assignor. Whatever defense the debtor 
had against the claim of his creditor holds good against 
the creditor's assignee. 

Assignment by Operation of Law. 

An assignment by operation of law transfers not only 
contract rights, bnt also contract liabilities, except such 
as depend upon personal skill or personal service. 
Upon the death of a party to a contract, the law oper- 
ates to transfer to his executor or administrator, all 
his personal estate, all his contract rights, and contract 
liabilities which are chargeable to the estate. The con- 
tract rights and liabilities of an insolvent or bankrupt, 
are also deemed by operation of law, to have been duly 
assigned to the trustee. 

Discharge of Contract. 

We may now consider how the contractual relation 
resulting from the contract may be terminated. A great 
authority on the subject of contracts has divided the 
methods of discharging a contract as follows: 



By agreement 
which may be by 



Waiver. 

Accord and Satisfaction. 
Substitution of a new contract. 
Express provision in the con- 
tract itself for its discharge. 



By Performance 
which may be by 



Doing the thing agreed to be 
done, which is very often 
payment. 

Tender — offering to do the thing 
agreed to be done, which is 
often tender of payment. 



DISCHARGE OF CONTRACT. 



41 



By Breach 
in case of 



By impossibility 

of performance 

when created by 



By Operation of 
Law in case of 



right 



of per- 



Renunciation of 

formance. 
Impossibility of performance 

created by the act of a party. 
Failure of performance. 

Law. 

Destruction of the thing essen- 
tial to performance. 
Incapacity for personal service. 

Merger. 

Alteration of document. 

Bankruptcy. 



Discharge by Agreement. 

When the contract is still executory, that is, not per- 
formed on either side, the parties to it may mutually 
agree to discharge it as though it had never been made. 
The waiver of his rights under the contract by the one, 
is sufficient consideration for the waiver of his rights 
by the other. But when the contract has been executed 
by one party, he cannot discharge the contract by waiv- 
ing his rights as against the other party, except by giv- 
ing him a release under seal, for some valuable con- 
sideration. 



Discharge by Express Provisions in Contract. 

Sometimes the contract contains a condition whereby 
the parties agree that the contract is to be discharged 
if a certain thing is not done; or upon the happening 
of a particular event; or by the exercise of one of the 
parties of an option to determine it, as in the case of 
an article sold under approval for a certain time. 



42 COMMERCIAL LAW. 



Accord and Satisfaction. 



Another method of the discharge of a contract is by- 
accord and satisfaction, which is an agreement in the 
case of a contract where the creditor agrees to accept 
some other thing instead of that which is contracted or 
promised to be done. The agreement of accord must 
be founded upon a valuable consideration; and the 
question of consideration with regard to accord and 
satisfaction always arises when there is a dispute as to 
the effect of part payment of a liquidated or unliquidat- 
ed debt or claim. 

The payment at the same time and place as agreed 
upon of a sum less than the agreed one is never an ac- 
cord and satisfaction of the real sum, even though ac- 
cepted as such, because there is no consideration for 
giving up the rest of the money due. On the other hand, 
if the time and mode of pa3riiient is different from that 
provided in the contract, a new benefit is or may be con- 
ferred on the debtor, which creates a new consideration, 
and the agreement is a good one for the taking of a sum 
less than that due in order to make a complete accord 
and satisfaction. 

The following are examples which would be con- 
sidered good accord and satisfaction: 

(1) Payment in part at an earlier date or at a dif- 
ferent place from that agreed upon. 

(2) Payment by a stranger of less than the debt, if 
accepted in full discharge of the whole debt. 

(3) Payment by a debtor of a negotiable note for less 
than the debt due. 

(4) Payment in property, no matter what the value 
of such property may be. 

(5) The note of a third person for a less amount 
than that due. 



DISCHARGE BY PERFORMANCE. 43 

If there is a dispute as to the debt or claim, the pay- 
ment and acceptance of part only of the whole debt is 
good satisfaction. To discharge the contract oi cause 
of action the accord must be executed, and this execution 
is called the satisfaction. It is the actual performance 
of agreement of accord by one party and acceptance by 
the other in full satisfaction of the original debt, con- 
tract, or cause of action. 

Discharge by Substitution. 

This differs from discharge by agreement, as dis- 
cussed under the previous heading. There we saw that 
the contract was wiped out entirely, while here it is re- 
placed by a new agreement between the parties. The 
consideration of the new agreement is the discharge of 
the old one. 

Under this head may be included a novation, which 
is a discharge of the old contract by substituting a new 
one with a new party in it. A owes B $100, and B owes 
C $100 ; and by agreement between the parties, A prom- 
ises to pay C $100, thereby releasing B from his obli- 
gation to pay C. This new agreement must have the 
consent of all the parties, A, B, and C. 

Discharge by Performance. 

As we have seen, performance by one party to a con- 
tract does not discharge the contract; it only discharges 
him from his obligation under it. The contract will be 
discharged after both parties have performed. 

Payment, under a contract, should be made in money, 
unless otherwise agreed between the parties. It should 
be made to the creditor or his authorized agent. A 
check, or a note, given to the creditor, will not discharge 
the debtor from his obligation, unless the former ex- 
pressly, or by implication, agrees to accept it in absolute 



44 COMMERCIAL LAW. 

pa3^ment of the debt. Cheeks and notes are merely evi- 
dences of a debt, and if the note is not paid when due, 
or the check when dnly presented at the bank, the 
creditor may hold the debtor on his original obligation. 

Tjjnder of Performance. 

If one of the parties is prevented by the other from 
performing what he has contracted to do, he must make 
an honest oSer to perform at the agreed time and place, 
in order to be discharged from further liability under 
his contract. But if his obligation was to pay money, 
he makes a tender of it to his creditor who refuses to 
accept it, he will not be discharged from his obligation. 
He will only be relieved from paying any interest and 
the costs of an action brought afterwards by the creditor 
to recover the amount. 

Nature of a Tender of Money. 

When the obligation is to pay a sum of money, a 
tender at the agreed time and place amounts to a de- 
fense in an action, but is not a discharge. It must be 
made unconditionally, in the exact amount of the debt, 
and in legal-tender money of the place where the ten- 
der is properly made; it should be made by the debtor, 
or his authorized agent, to the creditor, or his authorized 
agent; and it should be kept open, so that the creditor 
may get it at any time he so desires. 

Legal-Tender Money of the United States. 

Gold coins of the United States, United States notes 
known as greenbacks, silver dollars to any amount, or 
smaller silver coins to the amount of ten dollars, and 
other coins, not silver, to the amount of twenty-five cents, 
are legal-tender money of the United States. However, 
where a contract expressly stipulates that payment is to 



DISCHARGE BY BREACH. 45 

be made in gold coin, silver will not constitute a legal- 
tender. 

Discharge by Breach. 

Failure to perform what one is bound to perform un- 
der the terms of the contract constitutes a breach of 
the same, and such breach gives to the other party to the 
contract a right of action to recover damages for the in- 
jury he may have received because of the breach. 

Though every breach of a contract obligation will con- 
fer a right of action, upon the party injured, it will not 
act to discharge him from performing on his part. 
Sometimes, however, where the breach goes to the 
whole substance of the contract, or affects some part of 
the contract which is vital to its existence, the injured 
party may rescind the contract and thus relieve himself 
from performing. 

In cases where the injured party does not rescind the 
contract, he may sue the other for the damages he has 
sustained by the breach. Suppose, though, he has con- 
tracted with the other for the purchase of a certain 
house, or for some rare article, which he desires and can- 
not obtain from another. It is evident, in such a case, 
that money damages cannot sufficiently recompense him, 
and he may then sue in a court of equity for specific 
performance. That is, to compel the other to do exactly 
as he agreed to do under the contract. 

Sometimes, one of the parties to a contract will re- 
nounce it before the time for performance has come. 
In such a case, it is now generally settled that the other 
may consider himself discharged from the contract, and 
entitled to sue at once for the breach. He need not 
wait until the actual time for performance to arrive. 
Then again, where one party's performance is condition- 
al on some act to be first done by the other party, a non- 



46 COMMERCIAL LAW. 

performance of that act will discharge the other and 
entitle him to sue. 

In a case where a party makes a breach of such a na- 
ture that it affects a term in the contract, which is re- 
garded as important or vital to its existence, the other 
party will be entirely discharged. We must look to the 
whole contract, and see whether the particular stipula- 
tion goes to the root of the matter, so that a failure to 
perform it would render the performance of the rest of 
the contract by the plaintiff a thing different in sub- 
stance from what the defendant had stipulated for, or 
whether it merely partially affects it, and may be com- 
pensated for in damages. 

Discharge by Impossibility of Performance. 

A contract will be discharged in cases where it be- 
comes impossible to perform it by reason of physical in- 
capacity in contracts for personal services, legal preven- 
tion, or destruction of subject-matter, where the contract 
is for the performance of work upon a certain thing. 
It is evident in such cases, that the parties have con- 
tracted upon the presumption of their continued ca- 
pacity, or of the continued existence of the subject- 
matter of the contract, and the law will operate to 
discharge the contract if this presumption fails. So, 
if a contract is intrinsically impossible of performance, 
as where a man contracts to walk through the air, it is 
absolutely void. 

Discharge by Operation of Law. 

A deed or contract in writing will be discharged if 
one party to it, without the consent of the other, alters 
it, by adding or erasing something material. 

Certain things must be shown before an alteration can 
affect the discharge of the contract, namely that the 



PRACTICAL QUESTIONS ON CONTRACTS. 47 

alteration be made by a party to the contract or by a 
stranger while the document is in the possession of a 
party to the contract and for his benefit. This means 
an intentional alteration, for one occurring by accident 
or mistake will not invalidate the contract, where the 
evidence is to negative the intent. The alteration must 
be without consent of the other party. There must be 
an alteration of some material part. Death will also 
operate to discharge a contract which has for its object 
the rendering of personal services. 

Where a party to a contract becomes bankrupt, all 
his property passes to his trustees, who can exercise the 
right of the bankrupt as to contracts, carrying the same 
out, if it may tend to promote the bankrupt's estate, 
or if its tendency is to act otherwise, the trustee can 
even repudiate the contract. 

A discharge in bankruptcy, relieves the bankrupt 
from all the debts whether on contract or otherwise, 
with certain limitations depending upon whether or not 
the bankrupt was guilty of fraud in incurring the same. 

PEACTICAL QUESTIO:^S OlST CONTRACTS. 

1. What are the essential elements in general of every 
legal contract? 

2. State the difference between an express contract 
and an implied contract. 

3. A makes a contract with B to buy of him certain 
goods. B sends goods, which A refuses to receive. What 
would you advise B to do? 

4. A and B make a land contract Jan. 2, 1906, 
whereby B agreed to buy of A certain premises, title to 
be given and purchase price paid April 2, 1906. March 
1st, 1906, barn on premises, which is not worth much, 
burns. April 2, 1906, A tenders deed, but B refuses 
to pay. What are the rights of the parties? 



iS COMMERCIAL LAW. 

5. A buys a suit of clothes from a tailor. Afterwards 
B writes that he will pay for the clothes. Is the promise 
binding ? 

6. A does certain work for B without any agreement 
as to the price to be paid. B sends a check for $100, 
with a notice that he sends it in payment in full. A ac- 
cepts and uses the money. Afterwards he sues for $200, 
which he claims as value for services. Can he maintain 
an action? 

7. A sends B an order for 100 barrels of flour to be 
sold on credit of 20 days, although he owes B, and B 
never sells on longer credit than 10 days. B sends 99 
barrels on credit of 10 days. The flour is destroyed in 
transportation. On whom does the loss fall? Give 
reason. 

8. A buys on contract, a piece of land from B. After- 
wards he brings action for reformation of contract, 
claiming that when he bought property he supposed 
there were deposits of coal on land, and would not have 
bought it if he had not supposed this. What are the 
rights of the parties? 

9. A owed B $1000. B agreed to give A a receipt in 
full if A would pay $750. A paid that sum and re- 
ceived a receipt. 1'he next day B sued A for $250. Can 
B recover? Why? 

10. A grandfather agreed with his grandson, who 
was then 17 years of age, that if he would refrain 
from drinking liquor, using tobacco, swearing, and play- 
ing cards until he became of age, that he would give him 
$10,000, to which the grandson agreed, and thereafter 
lived up to the agreement. On the grandson becoming 
of age, he demanded the money and was refused. There 
was no dispute as to the facts, and upon the grandson 
bringing the action the grandfather defended on the 



PRACTICAL QUESTIONS ON CONTRACTS. 49 

ground that the contract was void. If void, on what 
ground? If consideration was good, on what ground 
should it be upheld? Judgment for whom? 

11. On a voyage of the " Good Hope " from New 
York to London a violent storm arose which threatened 
the safety of the ship. The sailors who had shipped for 
the voyage for $100 refused to work the ship during the 
storm unless they were to get $150 for the trip. The 
master having the power to bind the owners agreed to 
do so, and so they brought the ship safely into port. 
One of the crew sued the owners for the extra $50. 
Can he recover ? Give reasons. 

12. A wrote to B, stating that he understood that B 
wished to buy a horse: that he had one to sell for 
$400, giving a minute description, and ending with "and 
I am sure that the horse will suit you." B responded 
by letter : "I think that I will purchase the horse at the 
price you mention. How can I get it? I would like it 
at once if it will do, which I think or am quite certain 
it will. Please reply and oblige." A replied at once by 
wire: "The horse is yours and my coachman is on his 
way with him now. Send the pay by him." The horse 
arrived and B refused to receive it, claiming that he had 
not bought it. Has A remedy against B? State fully. 

13. A and B made a contract for the manufacturing 
of shears according to sample furnished, B to furnish 
the principal parts and A to furnish certain minor parts 
and the labor necessary to the manufacture. The shears 
were not made according to the sample furnished. The 
defect was not apparent, and B did not notice it at the 
delivery of the first lot or until the rest were ready 
to deliver. He refused to accept any more and refuses 
to pay for those already delivered to him, but does not 
offer to return them. A sues on the contract for work 



50 COMMERCIAL LAW. 

and labor done. What principles of law are involved in 
the case, and is A entitled to recover? 

14. A was the highest bidder at an auction sale. 
After he had made his bid the auctioneer with hammer 
suspended delayed for a time calling for a higher bid 
and then cried out : " Third and last call." The hammer 
was just descending, and just before it struck, A called 
out in the hearing of the auctioneer that he withdrew 
his bid; then, the auctioneer struck down his hammer 
and declared the property was sold to A. A refuses xo 
accept and pay for the article. Upon what ground if 
any, is A held? If not, why not? 

15. A agrees with B to deliver to him at his ware- 
house to-morrow 100 barrels of flour at $5.00. Flour 
falls in price over night $1.00 per barrel, and upon de- 
livery of the flour B refuses to accept the same. What 
are the rights of the parties? 

16. A wrote to B offering to sell him a horse for 
$200. B replies he would give him an answer in five 
days. On the fifth day he wrote a letter accepting A's 
offer, and as he was on his way to the office, but before 
he had mailed the same, he received a telegram from A 
withdrawing the offer. He thereupon mailed the letter 
of acceptance and now seeks to enforce the contract. 
What are his rights? 

17. A going along a highway discovered a fire which 
threatened the buildings of B. He thereupon set about 
to extinguish the fire and called to his assistance two 
others. He prevented B's building's from burning up, 
and now sues for services rendered and money expended 
in so doing. Can he recover? 

18. A wrote B, offering to sell the latter 600 bushels 
of oats at 25 cents per bushel, and gave the latter seven 
days in which to accept or reject the proposition. On 



PEACTICAL QUESTIONS ON CONTRACTS. 51 

the second day thereafter A sold the oats to C, and 
B on the third day, without notice of sale wrote A, ac- 
cepting the offer. On being informed of the sale, B 
sues A. What are the rights of the parties? Would 
their proposition be changed if B had notice of the 
sale before accepting the offer? 

19. A becomes engaged to marry B. Afterwards A 
discovers that B is a married man. She sues B for 
breach of promise. Can the action be maintained? 
Give reasons. 

20. A contracts with B for 20 special carriages, se- 
lected by A from those in B^s factory. B delivers 10 
of the carriages, and as he is about to deliver the other 
10, a fire, caused by no negligence of B, consumes 
them. A will not accept the 10 delivered and threatens 
a suit for breach of contract. B will not take back the 
10 delivered and sues to recover their price as agreed 
on in the contract. How would you advise the parties? 

21. A makes a written offer to employ B for 10 
months at $100 a month. B telegraphs A that he ac- 
cepts his offer and says that he will reduce the contract 
to writing at a day later. When B presents himself 
ready to perform under the contract, B finds A has em- 
ployed C in B^s stead. Can B recover? 

22. On June 21, A publishes in the Sun a reward of 
$1,000 to any person who captures a certain thief. 
On the 22nd of June A publishes in the Sun a revoca- 
tion of his offer. On the 23rd of June B captures the 
thief. He now claims the reward. Can he recover? 

23. A promises to marry B next Christmas. Six 
months before Christmas he marries C. B immediately 
sues A for breach of promise to marry, without alleging 
demand on her part that A should perform, or that she 
is ready and willing to perform. Can she succeed in 
her action? Give reason. 



52 COMMERCIAL LAW. 

34. A in New York writes B in California, making 
a proposition of contract; upon receipt of the letter B 
mails answer accepting proposition. The next day B 
telegraphs A, rejecting the offer. The telegram and let- 
ter reach at the same time. What are the rights of the 
parties ? 

25. A has lost certain pToperty and offers a reward 
of $500 to the finder. B, who knows nothing of the re- 
ward, finds the property and returns it to A. After- 
wards learning that a reward has been offered, he 
brings an action against A for the reward. Judgment 
for whom? 



CHAPTER IV. 

STATUTE OF FEAUDS. 

Its Origin. 

It has never been satisfactorily settled with whom the 
Statute of Frauds originated, whether the master mind 
of Lord Chief Justice Matthew Hale or that of Lord 
Nottingham was behind its adoption. We do know 
that the English Statute of Frauds was enacted in the 
year 16? 7 and has subsequently been adopted in the 
United States by every state, either in total or in sub- 
stance. 

Why the Statute of Frauds was Enacted. 

The statute was enacted to suppress fraud and per- 
jury by making provision for excluding in certain 
cases such modes of proof as experience had shown to- 
be peculiarly liable to corruption. Nor is it wise to 
limit the application of the statute to cases where there 
is in fact more or less danger of perjury or subornation 
of perjury, for where the proof is required to be in writ- 
ing, even the testimony of witness of the highest char- 
acter will be unavailing to remove it out of the opera- 
tion of the statute. 

In the course of time there has arisen by the decisions 
of the courts a large number of enlargements, modifica- 



54 COMMERCIAL LAW. 

tions, exceptions, differentiations and restrictions of the 
statute, which has served to foster much litigation. 

Eequirements of the Statute. 

Certain agreements were required to be in writing 
in order to be used as evidence that a contract had been 
entered into. Such contracts, however, if orally made, 
will not be void; the effect of the statute being simply 
to make them unenforceable. 

The statute contains 24 sections, each relating to 
different subject matters, but the 4th and 17th sec- 
tions of the statute will be sufficient for our con- 
sideration. 

Section 4th of the Statute. 

The fourth section of the original act reads as fol- 
lows : " No action shall be brought whereby to charge 
any executor or administrator upon any special promise, 
to answer damages out of his own estate ; (2) or whereby 
to charge the defendant upon any special promise to 
answer for the debt, default, or miscarriage of another 
person; (3) or to charge any person upon any agree- 
ment made upon consideration of marriage; (4) or 
upon any contract for the sale of lands, tenements, or 
hereditaments, or any interest in, or concerning them; 
(5) or upon any agreement that is not to be performed 
within the space of one year from the making thereof; 
(6) unless the agreement upon which such action shall 
be brought, or some memorandum or note thereof, shall 
be in writing, and signed by the party to be charged 
therewith, or some other person thereunto by him law- 
fully authorized. 

Effect of the Statute on Oral Contracts. 

The statute does not make the contracts embraced by 
it illegal or void unless put in writing, but it simply 



DEBT^ DEFAULT, OR MISCARRIAGE. 55 

prescribes a rule of evidence that in cases where they 
are sought to be enforced, oral proof of them shall not 
be received. Thus will the oral agreement while not 
void, still be unenforceable. But, if either party has 
paid any money, or done any act based on the oral 
agreement, and the other party is willing to perform 
on his part, the statute does not apply. And if either 
party has received any money from, or has been ben- 
efited by, any act done by the other, in pursuance of 
an oral agreement, the former cannot refuse to perform 
on his part, and retain the money so obtained, by set- 
ting up the statute as a defense to an action brought 
to recover back the money so paid. In like manner 
where every thing has been performed on one side and 
only payment of the price remains, the statute cannot 
be used as a defense in an action to recover the price. 

Of principal interest in commercial law are the 
second and fifth clauses of section four of the statute: 

Second Clause of Section Four of the Statute. 

This clause reads : " A promise to answer for the debt, 
default, or miscarriage of another person.'' The prom- 
ise must be made to the creditor himself, and it must 
essentially be to pay out of the promissor's own estate. 
Even if the promissor has property belonging to the 
debtor in his charge or control, he cannot promise to 
pay any part of it to a creditor of the debtor. 

Debt, Default, or Miscarriage. 

Another's debt, default, or miscarriage, for which 
the promissor agrees to become obligated, must be such 
that it creates an obligation which can be enforced 
against the debtor in a civil action, otherwise the statute 
does not apply. In other words, the statute only ap- 
plies where the promissor takes upon himself an obliga- 



56 COMMERCIAL LAW. 

tion which is collateral to an enforceable obligation 
against the debtor. Thus for the purpose of illustra- 
ting: suppose A and B go to Smith's store, A wishing 
to buy goods from Smith. B in order to induce Smith 
to give A credit, says to him : " If A don't pay you I 
will." On the strength of this promise, Smith gives A 
credit and sells him goods. The original or primary 
debt is A's, and B's promise is merely a collateral under- 
taking to pay A's debt, and therefore unenforceable, 
unless in writing. 

If on the other hand B says to Smith : " Deliver the 
goods to A, I will pay for them," B creates an original 
obligation as against himself, the same as if he had 
bought the goods for himself, and no liability whatever 
attaches to A. It is clear that this is not a promise ta 
pay the debt, default, or miscarriage of another, and, 
therefore, the statute does not apply. 

If one promises to pay for services rendered, or 
goods delivered to another, the same as though they were 
his own, the promise is original and need not be in 
writing ; but if he only promises to pay in the event that 
the other does not, the promise is collateral and must 
be in writing. 

Fifth Clause of Section Four. 

This clause reads: '^Upon any agreement not to be 
performed within the space of one year from the time 
of making thereof." The statute applies to such con- 
tracts or agreements which cannot be fully performed 
within the space of one year; as, employing labor for 
more than one year, or for one year's services to begin 
at a future day. A contract for the performance of 
some act which must continue for more than one year, 
or a contract made to-day, for the performance of some 
act to begin to-morrow, and which act cannot be fully 



FRAUD COMMITTED UNDER COVER OF THE STATUTE. 57 

performed within one year from to-day, is within the 
statute and must be in writing to be enforceable. 

Section 17 of the Statute. 

This section reads : " oSTo contract for the sale of any 
goods, wares, and merchandise for the price of £10 
sterling or upwards shall be allowed to be good, except 
the buyer shall accept part of the goods so sold, and 
actually receive the same, or give something in earnest 
to bind the bargain, or in part of payment, or that 
some note or memorandum in writing of the said bar- 
gain be made and signed by the parties to be charged 
by such contract, or their agents thereunto lawfully 
authorized." 

This statue was enacted in view of the mode and 
manner in which business affairs are usually conducted 
and was not intended to obstruct the full course of trade 
or to alford an excuse for violating commercial in- 
tegrity. 

Most of our states have adopted this section with 
but slight modification as instead of the £10 sterling 
limitation, the different states have adopted amounts 
ranging from $30 to $300 and, in a couple of states, 
sales of any amount. 

In the United States, the statute applies to practically 
all sales of personal property, including stocks, bonds, 
promissory notes, etc. 

Fraud Committed Under Cover of the Statute 

AND the EeMEDY. 

While a person who has entered into a verbal agree- 
ment which the Statute of Frauds requires to be in 
writing cannot obtain relief in the common law courts, 
he may nevertheless do so in a court of equity. As a 
learned writer has well declared : " The courts of equity 



58 COMMERCIAL LAW. 

are as much bound by the express provisions of the 
statute as the courts of law. They cannot in general 
specifically enforce contracts embraced by them, any 
more than the courts of law can give damages for their 
non-performance. But they have always been clothed 
with the power of preventing fraud, or affording pos- 
itive relief against its consequences, and this power 
they have not hesitated to exercise, by compelling the 
specific execution of a verbal contract to which the pro- 
visions of the Statute of Frauds apply, where the re- 
fusal to execute it would amount to fraud." 
PRACTICAL QUESTION'S ON STATUTE OF 
FEAUDS. 

1. A requested B to become his surety on a contract 
which he was about to sign with C, who would not close 
the bargain unless B would guarantee the performance 
of the same by A. B refused unless D would guarantee 
to indemnify him from the loss as such guarantor. D 
said he would, and B therefore became the guarantor 
for A and was thus compelled to pay $1,000 by reason 
thereof. B sues to recover the $1,000, and D answering, 
pleads the statute of frauds for want of consideration 
for the promise. Judgment for whom, and why? 

2. A enters into an oral agreement with B, by which 
B agi'ees to clear a certain wood lot in 18 months. B 
works six months and is arbitrarily discharged by A, 
who claims that their contract is void under the statute 
of frauds. What are the rights of the parties, and what 
damages can B recover, if any? 

3. A desires to buy goods of B. B says he will not 
sell the goods unless C goes surety for A. C says he 
will not go surety for A unless D secures him. D does 
so, and C goes surety for A. D's agreement with C was 
oral. C is obliged to pay A's debt. C sues D. D sets 
up the statute of fraud. What are his rights? 



PRACTICx\.L QUESTIONS ON STATUTE OF FRAUDS. 59 

4. A is a newspaper publisher. B is a paper manu- 
facturer. A contracts orally with B to manufacture 
and to deliver to him twenty tons of newspaper in sixty 
days. B does not deliver the paper according to con- 
tract, and in a suit by A on the above contract, B sets up 
the statute of frauds as a defense. Is it good? 

5. What is the purpose of the statute of frauds? 



CHAPTER V. 

STATUTE OF LIMITATIONS. 

What are Statutes of Limitation and their 
Object. 
Statutes of Limitation are enactments of the Legis- 
lature prescribing the time in which actions may be 
commenced on certain claims ; or the time within which 
certain rights may be enforced. The object of these 
statutes is to compel the settlement of claims within a 
reasonable time after they have arisen and while the 
evidence upon which their enforcement or resistance is 
yet fresh in the minds of the parties or their witnesses. 
At common law there was no limitation as to the 
by the adverse possession of realty. The rule was that 
bringing of certain actions or the enforcement of cer- 
tain rights, and reference must be had to the statute 
time within which an action could be brought, other 
than that created by the presumption of payment or 
limitations; and actions in tort were subject only to the 
a right never dies ; actions in contract were subject to no 
limitation that personal actions died with the person- 
Each state has its own period of limitation for the 
of the state in which it is sought to plead the limitation 
periods as a defense to an action brought. 



INTEREST TABLE. 



61 



The table hereto appended and brought down to the 

year 1906, contains the Statutes of Limitations of the 
different states for the time in which suit may be com- 
menced on judgments, negotiable paper, and open ac- 
counts. 



States and Territories. 



Statutes of Limitations. 



Jude- 




Open Ac- 


ments, 


Notes, 


countt, 


Years. 


Years. 


Years. 


20 


6(b) 


3 


10 


5 


3 


5 


4 


3 


5 


4 


2 


20 


6 


6 


(a) 


(e) 


6 


10 


6(f) 


3 


12 


3 


3 


20 


5 


2 


7 


6 (f) 


4 


6 


5 


4 


20 


10 


5 


20 


10 


6 


20(d) 


10 


5 


5 


5 


S 


15 


15 


5(g) 


10 


5 


3 


20 


6(c) 


6(0) 


12 


3 


3 


20 


6 


6 


6(b) 


6 


6(0) 


10 


6 


6 


7 


6 


3 


10 


10 


5 


10 (m) 


8 


5 


5(j) . 


5 


4 


6 


4 


4 


20 


6 


6 


20 


6 


6 


7 


6 


4 


20 (n) 


6 


6(o) 


10 


3(b) 


3 


10 


6 


6(0) 


15 


15 


6 


5(h) 


5 


3 


10 


6 


6 


5(p) 


6(f) 


6 


20 


6 


6 


20 


6 


6 


10(1) 


6 


6 


10 


6 


6 


10 (i) 


4 


2 


8 


6 


4 


8 


6 


6(0) 


20 


5(b) 


2(q) 


6 


6 


1 


10 


10 


3 


20 (i) 


6 


6 


5(k) 


5 


8 



Alabama 

Arkansas 

Arizona 

California 

Colorado 

Connecticut 

Delaware 

District of Columbia 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New Hampshire. . . . 

New Jersey 

New Mexico 

New York 

North Carolina 

North Dakota 

Ohio 

Oklahoma 

Oregon 

Pennsylvania 

Rhode Island 

South Carolina 

South Dakota 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

West Virginia 

Wisconsin 

Wyoming 



62 COMMERCIAL LAW. 

(a) No limit. 

(b) Under seal, 10 years. 

(c) Witnessed, 20 years. 

(d) Twenty years in Courts of Record; in Justice's Courts, 10 years. 

(e) Negotiable notes 6 years, non-negotiable 7 years. 

(f) Under seal 20 years. 

(b) Accounts between merchants 2 years, 
(h) On foreign judgments 1 year, 
(i) Is a lien on real estate for only 10 year 
(i) Becomes dormant but may be revived, 
(k) And indefinitely, by having execution issue every 5 years. 
(1) Ten years foreign, 20 years domestic, 
(m) In courts not of record 5 years, 
(n) Not of record, 6 years. 
(o) I Six years from last item, 
(p) Ceases to be a lien after that period, 
(q) Store accounts, other accounts 3 years. 

Time of Running. 

When the Statute of Limitations has commenced to 
run in any case, it will not cease to do so by reason of 
any subsequent event unless that event comes within 
the exceptions to the statute. An instance of such ex- 
ception, where the statute was suspended by implica- 
tion, was during the late Civil War. In a suit coming 
before the United States Supreme Court, where the 
Statute of Limitation was pleaded as a defense, the 
Court said : " In time of war the running of the statute 
is stopped rather by the loss of ability to sue through 
the government prohibition of intercourse than the loss 
of the right; a creditor then has not the full time al- 
lowed by the statute for suing, and its suspension 
exists as well where the government is creditor as where 
the creditor is a citizen of the government. '* 

The Statute as Affecting Simple Contracts, 
Judgments, and Liens. 

It is always to be remembered that the statute does 
not affect the right but only the remedy. It acts as a 
bar for the enforcement of the right. Each state has 
its own special provisions for the time in which action 
must be commenced in causes arising out of simple 
contracts where the statute begins to run from time of 



POSTPONEMENTS AND INTERRUPTIONS OF THE 63 
STATUTE. 

breach of the same; judgments, where it runs after a 
valid judgment has been docketed. 

In the case of liens, it must be noted that while the 
principal obligation may be barred from enforcement 
by virtue of the statute, the security which serves as a 
lien is not thereby annulled or cancelled. Thus, in case 
of a debt secured by mortgage, which debt is barred 
by the statute, an action could not be maintained in a 
court of equity to compel the holder of the mortgage 
to satisfy it on the ground that it is a cloud in the title, 
except upon the condition that the party complaining 
shall pay the principal and interest due. The mortgage, 
by its terms, is intended to remain in force until the debt 
is paid, and the fact that the creditor's remedy thereon 
is barred by a statute, does not discharge the debt or 
constitute payment of it. So also in the case of a lien 
on personal property. The principal debt may be 
barred by the statute, but the lien itself is not destroyed. 

Postponements and Interruptions of the Statute. 

The beginning of the operation of the Statute of 
Limitations may be delayed by reason of some excep- 
tion to the general rule, that the statute begins to run 
from the time when the cause of action accrued. Courts 
of equity have always declared that a defendant's fraud- 
ulent concealment of a cause of action, will postpone 
the running of the statute, until such time as the plain- 
tiff discovers the fraud, the reason for this being that 
the defendant having, by his own wrongdoing prevented 
the plaintiff from bringing his suit, he cannot take ad- 
vantage of the wrong by defending under the statute. 

Many of the states have provided by statute that where 
the cause of action is fraudulently concealed, or where 
it arises from fraud, the Statute of Limitations shall 
not begin to run except from the time of its discovery. 



64 COMMERCIAL LAW. 

It must be borne in mind that where the plaintiff's 
cause of action is for a fraud committed by the defen- 
dant and the plaintiff is aware of the facts, and there 
is no concealment, the operation of the statute is not 
postponed. 
New Promise and Acknowledgment. 

A new promise does not stop the running of the 
statute, but fixes a new date as the point from which 
the period of limitation is to be reckoned. The statute 
affects the remedy and not the original right, so that 
the consideration for the new promise is the old debt. 
In many of the states, laws have been enacted prescrib- 
ing what shall constitute a new promise to pay the debt 
or acknowledgement of the same; what their formality 
should be; and what their effect is. It is essential that 
the acknowledgment or the new promise should relate 
to the particular claim which the creditor seeks to 
revive by virtue of such new promise or acknowledg- 
ment made by the debtor. The acknowledgment must 
be made deliberately and intentionally, and not through 
a mistake or through any inadvertence. 

The United States Supreme Court has established 
the rule that the admission or recognition of the debt 
which would amount to a new promise must be some- 
thing more than an acknowledgment consistent with 
the implication of a promise to pay: that it must be 
such as fairly to indicate both a liability and a willing- 
ness to pay. The acknowledgment must be clear, plain, 
unambiguous, and so distinct in its extent and form as 
to preclude any doubt as to the debtor's meaning. If 
any conditions or qualifications are annexed to the new 
promise or acknowledgment by the debtor, it will be 
unavailable to remove the effect of the Statute of Lim- 
itations unless proof is given of the performance of 



PRACTICAL QUESTIONS ON STATUTE OF LIMITATIONS. 65 

such condition. So, if the new promise should be as 
follows: "If A will say I had the timber, I will pay 
for it," or " prove it by A and I will pay for it," or " you 
shall have your pay if I live and the whaling business 
does not fail " ; they would all be conditional acknowl- 
edgements and inoperative, unless it is shown that the 
condition has been performed. 

Part Payment. 

Part payment of a debt will also result in taking 
it out of the Statute of Frauds. The payment must 
be of a portion of a debt which is admitted, and it 
should be paid to and accepted by the creditor as such, 
and with the understanding and unqualified acknow- 
ledgment that more is due, from which a promise may 
be inferred to pay the remainder. If a debtor pay to 
his creditor a less sum than was due, under an agree- 
ment that it was to be accepted in full, it would not 
be such a part payment as to remove the bar of the 
fitatute. 

PEACTICAL QUESTIONS ON STATUTE OF 
LIMITATIONS. 

1. What is the statute of limitations, and on what 
policy is it founded? 

2. When would the statute begin to run in the case 
of a) goods sold and delivered, to be paid for in six 
months, &) a note payable on demand? 

3. A owes B $100 which is outlawed by the statute 
of limitations. No pajrment has been made and no 
action has been brought. Subsequently A promises B, 
oraUy, to pay the debt. Can B i-ecover on this promise 
or on any theory? Would your answer be the same if 
A's last promise had been in writing? Explain. 



66 COMMERCIAL LAW. 

4. A who owes a debt contracted abroad some years 
ago is now spending part of his time in New York and 
part of it in Pennsylvania. The creditor is in a position 
to bring suit against him conveniently in either of these 
two States. If such suit were begun and the question 
was raised as to the debt being outlawed would that 
point be settled in accordance with the law of New 
York or Pennsjdvania, as the case might be, or in 
accordance with the law of the place where the debt was 
contracted ? 

5. A gives B two notes dated July, 1895, the notes 
maturing two years after date. During the life of these 
notes, and in fact up to a month or so ago, A gradually 
pays, from time to time, small amounts on account, but 
at their maturity there is still a small balance due. The 
notes in question were ordinary promissory notes and 
not judgment notes. When does the statute of limita* 
tions begin to run? 



CHAPTER VI. 

INTEREST AND USURY. 

Definition of Interest. 

Interest is the compensation allowed by law or fixed 
by the parties to a contract for the use or forebearance 
or detention of money. Interest is allowed by law 
where there is a breach of a contract or the violation 
of a duty, in which case it is known as interest by way 
of damages, as distinguished from contractual interest, 
which is fixed by the agreement of the parties. 

Interest by Express Agreement or Contractual 
Interest. 
Where the parties expressly agree to that effect, in- 
terest is created when the contract is in writing, by 
the use of these words in the same ; " bearing interest," 
"with interest/' or "with interest on the same.'' If 
the rate of per cent of interest is not specified, then 
it is presumed that the parties intended the legal rate. 
If the rate is agreed upon, that will always govern, 
except if it be contrary to law, or that it is such a 
high rate as to be unconscienable. Interest is always 
to be paid when the principal is paid, unless there is 
an express agreement otherwise, as where the contract 
reads "with interest to be paid annually." In that 



68 COMMERCIAL LAW. 

case the interest would be payable at the end of each 
calendar year, reckoning from the time the interest 
began to run on the contract. 

It sometimes becomes necessary to find in what sense 
the words " per annum," are used in a contract with ref- 
erence to the payment of interest. As, for instance, 
a note is made reading with interest " six per cent 
per annum." Should that be paid annually, or does it 
simply indicate that the rate named is that by the 
year? The courts have adopted the latter interpreta- 
tion, and say that it simply shows the rate at which 
the interest is to be paid. 

Interest Allowed as Damages. 

The right to interest as damages generally rests 
upon default in payment and not upon the use of money 
due. There are certain essentials necessary before this 
class of interest can be allowed. 

(1) The amount that is due must be a certain one. 

(2) The time when it is due must also be certain. 

(3) The amount due and the time of payment must 
be known to the debtor. 

Where a claim is payable on demand, the interest 
can only run from and after the demand has been made. 

The rate of interest which the court will allow is 
always the legal rate. 

Rate of Interest. 

There are two classes of rates per cent of interest, 
the legal and the conventional. The legal rate is that 
rate per cent established by law, either by constitution, 
statute, or custom, for which all parties are conclusively 
presumed to have contracted, in the absence of an 
agreed rate, and which is also allowed as damages. • 



USURY. 



6^ 



The conventional rate is the rate per cent expressly 
agreed upon by the parties to a contract, and if it is 
not usurious or unconscienable the law will always en- 
force the conventionable and not the legal rate. An 
example of conventional interest would be the interest 
on maritime loans. 

The legal rate per cent, as established by the differ- 



ent states, is 


"ound 


in the following table 






States and 


Interest laws. 


States and 
Territorik*!. 


Interest Laws. 


Tekritories. 


Legal 
liate. 


Rate 

Allowed by 

Contract. 


Legal 
Rate. 


Rate 

Allowed by 

Contract. 


Alabama 

Arkansas 


Per ct. 

8 
6 
6 
7 
8 
6 
6 
6 
8 
7 
7 
5 
6 
6 
6 
6 
5 
6 
6 
6 
5 
7 
6 
6 
8 


Per ct. 

8 

10 

Any rate. 

Anj' rate. 

Any rate. 

6 

6 

10 

10 

8 

12 

7 

8 

8 

10 

6 

8 

Any rate. 

6 

Any rate. 

7 

10 

10 

8 

Any rate. 


Nebraska 

Nevada. . ... 


Per ct. 
7 
7 
6 
6 
6 
6 
6 
7 
6 
7 
6 
6 

6** 
7 
7 
6 
6 
8 
6 
6 
6 
6 
6 
8 


Per ct. 

10 

Anv rate> 


Arizona 


New Hampshire . 

New Jersey 

Nev/ Mexico 

New York 

North Carolina. . 
! North Dakota. . . 


6 


California 

Colorado 

Connecticut 

Delaware 

D. of Columbia. . 
Florida 


6 
12 

6* 

6 
12 

8 


Georgia 

Idaho 


Oklahoma 


12 
10 


Illinois 


Pennsylvania. . . . 
llhode Island.. . . 
1 South Carolina.. . 
South Dakota. . . 

Tennessee 

Texas . . . 


6 




Any rate. 


Iowa 


8 




12 


Kentucky 

Louisiana 


6 
10 


Maine 


Utah 

Vermont 

Virginia 

Washington 

West Virginia. . . 

Wisconsin 

Wyoming 


Any rat*» 


Maryland 

Massachusetts . . . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 


6 
6 
12 
6 
10 
12 



Note. — This table is revised to the year 1906. 

* New York has by a recent law legalized any rate of interest on call 
loans of $5,000 or upwards; on collateral security. 
*♦ Unless a different rate is expressly stipulated. 

Usury. 

The State in the exercise of its sovereignty can fix the 
maximum rate of interest, and any interest contracted 
for or paid above that amount is called usury. Any 
contract made for the payment of a larger rate of in- 
terest than that allowed by law is termed a usurious- 



70 COMMEKCIAL LAW. 

contract, and the different states have enacted statutes 
relating to usury making such contracts in some states 
entirely void, while others voidable. In some states the 
creditor forfeits all interest, and in others only the in- 
terest above the legal maximum rate. A reference 
should be made to the state statute to determine just 
what the law is on the subject. 

What Contracts Are Usurious. 

A contract in order to be usurious must be for a 
loan to be returned at all events with interest greater 
than the maximum rate, and not a sale. It must be 
usurious in itself and at the time of its inception, and 
if the statute require that there be a corrupt agreement 
then the minds of the contracting parties must meet as 
to its usurious nature. Generally in construing the 
usury law, it is the practice to allow no contract to stand 
if usury will be its ultimate effect, and the construction 
can be best determined from the intention of the 
parties and not the language or form employed in the 
contract. 

PEACTICAL QUESTIO]^S ON INTEEEST AND 
USUEY. 

1. B lent money to A to be paid on a certain day, 
with interest, meanwhile, at stated periods. Before 
that day arrives A tenders to B the payment of the 
principal in order to stop the running of interest. 
Must B accept? Give your reasons. 

2. A has a claim against B for damages resulting 
from an injury which he has received through the 
negligence of B. Suit is brought and B contests the 
same. When does the interest start running? 

3. A contractor furnished work and material in the 
building of a house. The amount of work and material 



PRACTICAL QUESTIONS ON INTEREST AND USURY. 71 

SO furnished is in dispute, as well as the price of the 
same. There is also a counterclaim against the con- 
tractor for work improperly done. Does the contrac- 
tor's claim carry interest with it? 

4. A made an agreement with B to the effect that 
B should pay him $1,000 upon the settlement of an 
estate. Five years thereafter the estate is settled, and 
A receives only $500. A brings suit against B, and the 
jury bring in a verdict for $500 with interest from 
the date of the agreement. Is that a correct verdict? 
Give your reasons. 

5. A lease stipulated that rent should commence on 
the completion of a certain building, and that the les- 
see should furnish two sufficient sureties to the pay- 
ment of the rent. The lease also stipulated that the 
time from which the rent should begin would be de- 
termined by arbitrators. The arbitrators never made 
any decision, but the lessee has been in possession for 
a period of six months without having paid any rent. 
Are the sureties chargeable with interest on the rent? 

6. What is usurious interest? 

7. Who may take advantage of the usury to escape 
liability on the debt? Can a contract, legal under the 
usury laws of the state where made, be enforced in a 
state where it would have been usurious? 

8. B, a debtor assigned a claim against his employer 
for wages, to secure a usurious loan. Was his employer 
entitled to plead usury as a defense when sued by the 
assignee to recover the wages? 

9. A promise to pay the debt of a third person, with 
interest thereon at 10 per cent, to a certain time, and at 
6 per cent, thereafter, made in consideration of a sale 
of property to the promissor. Is there any usury in the 
transaction ? 



72 COMMERCIAL LAW. 

10. A borrowed money on his own credit, and loaned 
it to B taking, in addition to the legal rate of interest, 
a Slim which B had agreed to pay A if he would procure 
the loan. Was the transaction usurious? 



CHAPTER VII. 

:n"egotiable bills and notes. 

What is Meant by Negotiability. 

At the outset it is well for the student to have a cor- 
rect idea of the theory of negotiabilit}', and the part 
it plays in the conduct of commercial affairs. 

Yearly our government issues thousands upon thou- 
sands of notes or bills of various denominations. These 
notes represent a certain quantit}" of precious metal, 
payable on presentation at one of the different sub- 
branches of, or at the main Treasury. The bill passes 
from hand to hand, perhaps through hundreds in the 
course of its circulation, and the holders use it for 
purchasing goods, property, living necessities, paying 
wages, etc. These notes are negotiated as and are part 
of the currency of our government. The thing that 
stamps these pieces of paper as of value, is the fact 
that they are issued by the government on the strength 
of its credit and solvency. They are distinct promises 
of a whole nation to exchange for the bill or note itself, 
in precious metal, a sum of money intrinsically worth 
its face. 



74 COMMERCIAL LAW. 

So a man's credit would depend upon the amount 
of property or valuable rights he has, or can procure. 
Based upon this credit, he issues private bills of ex- 
and notes which pass from hand to hand, each taker or 
receiver, believing that the credit of the one that issued 
the instrument is a guaranty of future payment. So 
in effect negotiable bills and notes, in some respects, 
play the part of money in commercial transactions. 
Formal and J^ecessary Eequisites of Negotiable 
Bills and Notes. 

A bill of exchange is an unconditional order in writ- 
ing upon one person, by another for the payment of a 
sum of money absolutely and at all events. 

Bills of exchange are divided into two classes, foreign 
bills and inland bills. An example of a foreign bill is 
the following : 

Mew Jork,. S. y. , June 5tix, 190&#' 

IPIBST BILL OP EXCHANGE. \ j 

Sixty days after Alglit. o^' this Pirst of Exchange (second 
and third unpaid) pay to tl/b ronierWHT Vames Brown One Hundred Pounds 
Sterling, value received, .aha chkfge the same, to the accoimt of 

fVr \\ /\ Joto QBitlj, 

To J. P. Kix & Co., 

Liverpool, Eng. 

The parties to the foregoing bill are respectively 
technically termed : 

(a) The drawer, or the party who orders the payment 
of the money in the bill, e. g., John Smith. 

(b) The drawee, or the party to whom the order is 
directed, e. g., J. P. Dix ~& Co. 

(c) The acceptor, that is the drawee when he agrees 
to pay the bill and evidences his agreement by accept- 
ing, e. g. Accepted. J. P. Dix & Co. 



PROMISSORY NOTES. 75 

(d) The payee, or the party in whose favor the order 
is made, e. g., James Brown. 

Subsequently if the payee, James Brown, should de- 
sire to negotiate the bill, he would indorse his name 
on the back thereof and ask a business friend of his, 
say one, Richard Eobin, to discount it. Robin does 
discount it and receives the bill, and the new parties are 
technically termed: 

(e) The holder, or person having legal possession of 
the bill e. g., Richard Robin. 

(f) The indorser, or one who directs the amount of 
the bill to be paid to a person mentioned in the indorse- 
ment, or to his order or to bearer, e. g., James Brown. 

(g) The indorsee, or the one who takes title to the 
bill through the indorsement, e. g., Richard Robin. 
Promissory Note. 

A promissory note is an unconditional written 
promise, signed by the maker, to pay absolutely and at 
all events a sum certain in money, either to the bearer 
or to a person therein designated or to his order. 

The following is an example of a common form of 
note : 

New York, N. Y., Aug. 16, 1905. 
$1000.00. 

Thirty days after date I promise to pay to the order of Charles 
Brunt, One Thousand Dollars (1000.00) value received at Chemi- 
cal National Bank. 

Jasper Shaw. 

The parties to the foregoing are termed: 

(a) maker : The one who signs the note and makes 
the promise, e. g., Jasper Shaw. 

(b) payee: The person to whom the promise is 
made, e. g., Charles Brunt. 

The holder, indorser, and indorsee are subsequent 
parties and are the same as in a bill. 



76 commercial law. 

Eequisites of Bills and Notes. 

For a bill of exchange or a promissory note to be ne- 
gotiable it must have these essentials : 

EOR A BILL OF EXCHANGE. 

(1) The bill must contain an order. 

(2) The order must be unconditional. 

(3) It must be an absolute order for the pa^Tuent of 
money alone. 

FOR A PROMISSORY NOTE. 

(1) The note must contain a promise. 

(2) The promise must be unconditional. 

(3) The promise must be for the payment of money 
alone. 

FOR BOTH BILLS AND NOTES. 

(a) The amount of money must be certain. 

(b) The payment must be at a time certain to arrive, 
^c; The instrument must distinctly state all its 

parties. 

(d) The instrument must be delivered. 

An Unconditional Order or Promise. 

At the outset we had occasion to remark that nego- 
tiable bills and notes were to a certain extent, the same 
as money for commercial purposes. Consequently it is 
very evident that an order or , promise to pay money, 
upon some condition, would not perform the functions 
of a substitute for money as a means of paying debts at 
distant places. This is so because the payment would 
depend upon a condition which may or may not be ful- 
filled ; therefore the instrument may or may not be paid. 
Take this kind of a bill for example. Smith in New 
York draws on Jones in Chicago to pay to Eobinson in 



TIME OF PAYMENT 77 

Chicago five hundred dollars, in case certain goods 
shipped by Smith to Jones arrive in Chicago and sell 
for five hundred dollars. If the goods fail to arrive 
or to sell for the amount named, neither Smith or Jones 
are bound to pay anything on the order to Eobinson. 
That bill being given to Eobinson in lieu of five hundred 
dollars in money which Smith owes him, it is clear that 
Eobinson would be uncertain whether he would ever have 
it paid, and he naturally would refuse to accept it as a 
substitute for his five hundred dollars. 

Then again the language of the instrument must be 
such as to be reasonably construed into an order or 
promise to pay. No mere request or acknowledgment 
of a debt can be considered an order or promise. 

Time of Payment. 

The time of payment is usually fixed on the face of 
the instrument at a certain number of days, weeks, or 
months after its date, or at a fixed date in the future. 

If the instrument be payable upon the happening of 
an event which is certain to happen, though the time 
when it will happen is uncertain, it is negotiable. 

Thus if A promises to pay B five hundred dollars 
on the death of C, son of A, it would be a good nego- 
tiable instrument for it is certain that C will die some- 
time, though we cannot tell when that event will happen. 
On the other hand, if A promises to pay B on the 
marriage of C then the note would not be negotiable, 
for it is uncertain that C will ever marry. 

Generally speaking, certainty is one of the first es- 
sentials of a circulating medium. If the conditions 
written upon the face of a negotiable instrument were 
to be permitted, then every holder would necessarily be 
charged with the conditions. And to be in a position 
to assert his rights, he would be bound to show that he 



78 COMMERCIAL LAW. 

had used all diligence to ascertain whether the condition 
had been fulfilled. And, the very essence of business 
paper being, that it shall pass freely from hand to 
hand, to allow such an ingredient in the theory of ne- 
gotiability would be an absurdity. 
Specification of Parties. 

A bill or note must be specific as to all its parties. A 
person is made a party by his signature to or some 
other written emblem upon the instrument that he in- 
tends to be bound by the instrument. 

The bill or note must contain the signature of the 
drawer or maker. 

The bill or note must point out some person to whom 
the money is to be paid. 

The payee of an instrument, except one payable to 
bearer, must be a person in being, natural or legal, and 
ascertainable at the time of issue. 

An instrument will fail as a bill of exchange if a 
drawee is not named therein. There must be a drawee 
who in theory has funds of the drawer which he is bound 
to apply to payment of the bill. 

Failure to designate a drawee in what is intended for 
a bill, does not necessarily nullify the instrument; it 
can be regarded as a note if all the necessary character- 
istics are present. Thus where an instrument otherwise 
in the form of a bill was not addressed to anyone, but 
across the face was written "Accepted ^' over the names 
of one Reynolds, the court held that on proof of Rey- 
nold's signature, while they could not treat it as a bill 
because of absence of drawee's name they would Kold 
it as a note. 

Words of Negotiation. 

An instrument must be made payable to order or 
bearer in order to be negotiable. If the words ^' order " 



ACCEPTANCE OF BILLS. 79 

or " bearer " are not used, then their equivalent must be 
inserted in the instrument. By the use of these words 
or their equivalent the drawer or maker authorizes the 
payee to transfer his rights to another person, and the 
drawer or maker binds himself to honor such transfer 
and pay the transferee or any other party subsequently 
designated. 

Delivery of the Instrument. 

A bill or note to become operative as against the 
drawer or maker must be delivered either actually by 
manual passing of the instrument itself to payee, or 
constructively by directing a third person in actual 
possession to deliver it to the payee. So to constiijute 
a complete delivery there must be a transfer accom- 
panied with an intent to transfer. The minds of both 
parties must concur. Thus in a case where the question 
was whether a check for $10,000 in gold left upon a 
clerk's desk, unknown to him and without his con- 
sciously accepting it, was a delivery of it, the court said 
it was not. 

Acceptance of Bills. 

An inspection of the bill set forth in a previous part 
of this chapter will disclose the words ^'Accepted, J. P. 
Dix & Co." written across the face of the instrument. 
This is termed an acceptance, and is a written under- 
taking by the drawee to pay the bill when it falls due. 

The drawee, until he has accepted the bill, is a 
stranger to the instrument, but the moment he accepts 
he enters into contract relations with the holder or 
payee of the instrument, and his acceptance is a virtual 
promise on his part to pay the bill. 

The acceptance must be absolute and according to 
the tenor of the bill to bind all the parties to it. By 



80 COMMERCIAL LAW. 

tenor is meant the request in the bill to pay the money 
at the time and place, and in the manner mentioned in 
it. A change in the acceptance in any one of these 
respects renders the acceptance " qualified." The pay- 
ment of the bill by the acceptor may be made depend- 
ent upon a condition, which makes it a conditional 
acceptance. 

The only person permitted to be an acceptor is the 
person to whom the bill is addressed, except that 
another person may be an acceptor for honor. This 
is an acceptance by a stranger to the bill for the benefit 
of all parties subsequent to him for whose honor it is 
made, and conditioned to pay the bill when it becomes 
due if the original drawee does not. 

Indorsements. 

Indorsement applies only to negotiable instruments. 
It is the writing of the name of the indorser on the 
instrument, either to transfer title of the same to 
another person, or to strengthen the security of the 
holder by assuming a contingent liability for its future 
pajnnent. 

Different Kinds of Indorsements. 

(a) Blank indorsement is where the payee simply 
writes his own name on the back of the instrument, 
without specifying any indorsee or person to whom the 
instrument shall be made payable. An instrument so 
indorsed is payable to bearer, and may be negotiated 
by delivery, i. e., if we take the note previously set forth, 
for example, Charles Brunt is the payee in this instru- 
ment. He desires to discount it, goes to A for that 
purpose. A consents to discount it, so Brunt signs his 
name upon the back of the instrument and hands it 



INDORSEMENTS. 81 

over to A. iSTow A can pass the note on to B, B to C 
etc., each without indorsing, they passing title by mere 
delivery. 

Special Indorsement. 

By this kind of an indorsement, the payee specifies 
the person to whom or to whose order the instrument 
is payable. The indorsement of the indorsee is then 
necessary for the further negotiation of the instrument. 
Thus in the above case if Charles Brunt had indorsed 
the instrument as follows : 

Pay to A or order • 

Charles Brunt 
we would have a special indorsement and A's signature 
or indorsement would be necessary to pass on the in- 
strument. 

Without Eecourse Indorsement. 

Meaning that the indorsee shall not be held liable 
if the instrument is dishonored. The form of words 
usually adopted for such indorsement is " Sans re- 
course," " Without recourse," or " At indorsees own 
risk." 

Conditional Indorsement. 

Where title to the instrument shall not pass until 
the condition set forth in the instrument is fulfilled is 
a conditional indorsement. An example of such an in- 
dorsement is '" Pay to John Smith or order, if he ar- 
rives at 21 years of age." 

Eestrictive Indorsement. 

A restrictive indorsement is one that prevents the 
further negotiation of the instrument, as where it reads, 
" Pay to A only." 



82 commercial law. ^ 

Essentials of Indorsement. 

(1) An indorsement must follow the tenor of the 
instrument. The indorser as well as the acceptor, may 
not alter the amount, time, place, or manner of pa3rm.ent.- 

(2) Indorsement must be by payee or subsequent 
holder, except where it is for accomodation, (which will 
be treated later). 

(3) Indorsement is complete on delivery. By de- 
livery the indorser shows his intention to pass title 
to the instrument, for before delivery while the instru- 
ment may have been made, it still can be revoked by 
the indorser, but on delivery the contract is complete. 
The delivery must be by the indorser. 

Liability of Parties to Negotiable Instruments., 
The Acceptor. 

The acceptor promises the payee and subsequent 
holders that he will pay the bill according to its tenor 
at the time of his acceptance. By his acceptance he- 
admits the genuineness of the drawer's signature, the- 
existence of the drawer, the capacity of the drawer to- 
make the bill, and when the bill is to the payee's order 
that the payee was competent to make the indorsement. 

These are facts which it is fair to presume the drawee 
is familiar with, since the drawer is usually his customer 
or correspondent, and consequently the acceptor is in 
a position to know better than any subsequent holder 
of their existence, at least it is his duty to ascertain, 
and if he fails to do so and still accepts, he becomes 
liable, nevertheless, for the law justly says, that he, 
rather than an innocent holder, should be held to detect 
a forgery or to know the fact that he had no funds of 
the drawer in his hands, or that he had no legal right 
to enter into a binding contract. 



ACCOMMODATION PARTIES. 83 

The Maker. 

The maker promises the payee and subsequent holders 
that he will pay the promissory note according to its 
tenor at the time of signing. He is under an absolute 
liability stated in express terms. 

The maker can make but one contract and that is 
with the payee, and all the rights and liabilities accru- 
ing to or against the maker are such as the payee him- 
self has. The maker of a note also admits that the 
payee is in existence and has the legal capacity to in- 
dorse the instrument. 

The Drawer. 

Every drawer promises the payee and subsequent 
holders that if the bill is duly presented for pa)rment 
to the drawee, and payment demanded and refused, and 
due notice of dishonor given, he will make good the 
amount due on the bill. The drawer of a bill admits 
that there is a drawee who is capable of accepting and 
that he will accept. 

The Indokser. 

The indorser of a bill or note holds out to his in- 
dorsee and all subsequent holders, that the instrument 
is genuine; that it represents a valid and subsisting 
contract obligation; that prior parties to the instrument 
were competent to bind themselves; and that he as in- 
dorser has good title to and a right to transfer the bill 
or note. These are called warranties, which the law 
implies from the nature of the contract an indorser 
assumes, when he indorses the paper and passes it on 
for further negotiation. 

Accomodation Parties. 

By an accomodation party is meant a person who has 
signed a negotiable instrument as acceptor, drawer, 



84: COMMERCIAL LAW. 

maker, or indorser, for the purpose of lending his name 
to some other person as a means of credit and without 
compensation. The accomodation party is liable on 
the instrument to all parties save the person accomo- 
dated. As between them there is no contract, for the 
paper is given without any consideration and for the 
mere purpose of accomodating. The practical way in 
which this method of accomodation is carried out can 
best be seen from an example. Smith desires $2,000 as 
a loan and goes to the Second National Bank — with 
whom he deals, for the money. The bank tells Smith 
that if Jones, one of the bank's heavy depositors and 
a friend of Smith will make a note to his order or will 
accept a bill of exchange drawn by Smith on Jones 
to the bank's order, he can have the money. Jones 
makes the note or becomes acceptor of the bill to ac- 
comodate Smith, thus enabling him to borrow his 
$2,000. Thereafter Jones is liable to the bank or any 
subsequent holders if Smith fails to pay. 
The Accomodated Party. 

Smith the accomodated party in the above example 
impliedly agrees; (a) to pay the bill or note; (b) to 
pay the accomodation party for all loss incurred, if 
that party is compelled to pay it in case of Smith's de- 
fault. 

Presentation and Notice of Dishonor. 
When a Negotiable Instrument is Dishonored. 

A negotiable instrument is dishonored in case of a 
note, when the maker fails or refuses to pay it at ma- 
turity; in case of a bill when the drawee refuses to accept 
when duly presented for acceptance; or after the ac- 
ceptance, by his failure or refusal to pay it at maturity ; 
in case of a check by the bank's refusal to cash it when 
presented. 



time of presentment 85 

Presentment Necessary. 

To hold the drawer and indorsers on a negotiable 
instriiment, presentment for acceptance or for payment 
is necessary, and in case of refusal, a notice of dishonor 
is necessary. This follows from the conditional nature 
of their liability as described before. The law imposes 
upon the holders of a bill or note these duties and be- 
fore they can obtain the enforcement of the instrument, 
a strict compliance with these regulations is required. 

What is Presentment. 

By presentment of a note or bill is meant, exhibit- 
ing it and requesting its acceptance or payment. If 
by the tenor of the instrument it is payable at a certain 
place it must be presented there; if no place is desig- 
nated then at the business office of the acceptor or 
maker; or if that cannot be ascertained then at his 
residence. 

Time of Presentment. 

Presentment for acceptance of a bill may be made 
at any time before maturity, unless it is a bill payable 
at or after sight in which case it must be presented 
within a reasonable time. Presentment for payment 
must be made on the day when the bill or note falls due, 
this is ordinarily fixed by the paper itself, e. g., thirty 
days; three months; one year; or other period after 
date. 

Presentment should be made during usual and rea- 
sonable business hours. By ^' usual and reasonable 
hours " is understood, that if presentment is made at 
a bank it should be during banking hours, but if made 
after banking hours to the proper authorities of the 
bank; presentment at a place of business, during the 



86 COMMERCIAL LAW. 

usual business hours, or at one's residence, between the 
usual hours of rising and retiring. 

In most states if the negotiable instrument falls due 
on a Sunday or legal holiday it may be presented for 
payment on the next day. In New York if a note falls 
due on Saturday it is payable Monday. 

By Whom Presentment is to be Made. 

Presentment is to be made by the lawful holder of 
the bill or note, or by his authorized agent. Where it 
is a bearer instrument or indorsed in blank, the party 
to whom the instrument is presented is bound to con- 
sider the person who has possession of the instrument 
as the one with ostensible legal title and therefore the 
proper person to make presentment and demand. 

Further Comment on Presentment. 

Somtimes it is impossible for presentment to be made 
on time because of conditions beyond the holders 
control, e. g., when the holder is ill and is thereby pre- 
vented from making due presentment, or where war, or 
contagious disease at the place of presentment renders 
it difficult or impossible: or a miscarriage of the mail 
causes the time for presentment to pass by, in all of 
which cases failure to make due presentment is ex- 
cusable, but the holder on the removal of such causes 
must proceed with reasonable speed to make pre- 
sentment. 

There are occasions when it may be dispensed with 
altogether, as where the drawer and indorser have 
waived presentment or if it is an instrument for their 
accommodation, presentment is unnecessary. Then again 
if the parties are fictitious, or if after suitable diligence 
they cannot be discovered within the state, presentment 
is dispensed with. 



PROTEST. 87 

Protest. 

A protest is necessary only on a foreign bill which 
has been duly presented for acceptance or payment 
and refused. A protest is defined as a solemn declara- 
tion written by a N'otary Public under a fair copy of 
the bill, stating that acceptance or pajonent has been 
demanded and refused, and the reason for refusal, it 
any assigned, and thus the bill is therefore protested. 
It is customary for a protest to be made on dishonored 
negotiable paper, whether it be a bill of exchange, note, 
or check, but it is only upon a foreign bill that a protest 
is necessary. 

The reasons for a notary's protest in case of dishonor 
are best understood by an instance of its operation. 

Suppose A in Isew York draws a bill on B, his debtor 
in Liverpool, and then takes this bill to his banker to 
be discounted. The bank sends it over to its Liverpool 
correspondent, who presents it for acceptance, but B 
refuses to accept and it is consequently dishonored. 
The bill then comes back to the New York banker, who 
demands of A the money advanced on the bill, together 
with interest and protest fees. Of course the banker 
must first prove to A that the bill had been dishonored 
by B the drawee, in other words that it had been duly 
presented to B who refused to accept the bill. It would 
be inconvenient as well as expensive for the banker to 
have the person who made the presentment come over 
here to prove the dishonor, so the certification of pro- 
test by the notary is received as evidence that the bill 
had been presented and acceptance or payment refused. 

It is proper for the notary to make presentment in 
person and if the instrument is dishonored to make a 
memorandum of the time and place of dishonor and 
subsequently on the same day fill out a proper cer- 
tificate of protest. 



88 COMMERCIAL LAW. 

The following is a form of a protest: 

United States of America,) 

State of New York, - ss. 

City and County of New York.) 

On the 10th day of April, 1895, at the request of The Century 
National Bank, I, Albert Jones, a Notary Public of the State of 
New York, duly commissioned and sworn, did present the 
original Promisory Note hereunto annexed, to the maker and 
demanded payment and who refused to pay the same, 

Whereupon I, the said Notary, at the request aforesaid, did 
Protest, and by these presents do publicly and solemnly 
Protest, as well against the Drawer and Endorsers of the said 
promissory note as against all others whom it doth or may 
concern, for .exchange, re-exchange and all costs, damages and 
interest already incurred, and to be hereafter incurred for want 
of payment of the same. 

Thus done and Protested in the City of New York, afore- 
said, in the presence of John Doe and Richard Roe, witnesses. 
In Testimonium Vertiatis. 

Albert Jones, 
Notary Public. 
United States of America) 

State of New York, > ss.: 
City and County of New York) , 

I, Albert Jones, a Notary Public of the State of New York, 
duly commissioned and sworn, do hereby Certify, that on the 
10th day of April, one thousand nine hundred and five, due 
notice of the presentment and protest of the said promissory 
note after demand and refusal of payment thereof, by notice, 
partly written and partly printed, signed by me, was given by 
me to the respective endorsers of the said instru- 
ment, by depositing the same in the Post Office at New York 
City (prepaying the postage thereon), duly directed and super- 
scribed to said maker and endorsers, as follows, to wit: To 
John Brown (maker), 260 Broadway, N. Y. City; Samuel Well- 
man, 190 Broadway, N. Y. City; WiUiam Hopkins, 150 Fifth 
Ave., N. Y. City; the above named places being the reputed 
places of residence of the person to whom such notice was so 
addressed, and the Post Office nearest thereto. 

In Testimony Whereof, I have hereunto set my hand and 
affixed my official seal at New York City, N. Y. 

Albert Jones, 
Notary Public. 



CHECKS. 89 

Notice of Dishonor. 

Notice of dishonor is bringing either verbally or by 
writing, to the knowledge of the drawer or indorser of 
the instrument, the fact that a specified negotiable in- 
strument, upon proper proceedings taken, has not been 
accepted, or has not been paid, and that the party noti- 
fied is expected to pay it. The notice is quite informal 
and is given between parties residing at the same place, 
either personally, verbally, or in writing, or by leaving a 
written notice at the residence of the person to be 
charged. If the parties reside at different places, a 
mailed notice properly addressed is sufficient. 

The usual form of notice of dishonor is as follows: 

New York, N. Y., Aug. 14, 1904. 
Please to take notice that a note made by James Brown for 
$1000 and interest, dated July 13, 1904, payable at the Century 
National Bank, Aug. 13, 1904, and indorsed by you, has been 
dishonored, payment having been duly demanded at its ma- 
turity and refused, and the said note has therefore been pro- 
tested for non-payment and that the holders look to you for 
payment thereof, and of all damages, cost, and charges thereon . 
Yours, etc., 

Alfred Jones, Notaru Public, 
Fifth National Bank, N. Y. 
To Fred H. Smith. 

Checks. 

A check is in the nature of a bill of exchange pay- 
able on demand. It is governed by most of the rules 
that are applicable to a bill of exchange. It is an order 
on a bank for the pa5rnient at all events of a certain 
sum of money to a person therein named or to his order 
payable instantly on demand. It purports to be drawn 
against the deposit of funds which the bank holds 
for the benefit of the drawer. 



90 COMMERCIAL LAW. 

The following is a form of a check: 

New York, N. Y., August 15, 1905 
TENTH^ NATIONAL BANK OF NEW YORK. 
Pay to the order of John Irving Adams 
Two Hundred and 25-100 Dollars. 
$200 ^ William Sands. 

Certification of Check. 

Using the foregoing check as an illustration: Adams 
wishing to be certain that Sands has fnnds in the bank 
and that it will honor the check presents the same to 
the paying teller for certification. The paying teller 
after satisfying himself that there are funds to meet 
it, reserves $200.25 of Sand's funds for the payment 
of the check, stamps the check as certified and signs 
his name. 

The effect of this certification is to discharge the 
drawer and indorsers if there are any from liability. It 
creates a new and binding obligation on the part of the 
bank. It is an appropriation of the funds of the drawer 
to the amount of the check, to its payment and an uncon- 
ditional promise by the bank to make payment on de- 
mand. If the check has been raised, the certification 
covers only the amount originally called for, and not 
the amount as certified by the bank. 

Holder of Negotiable Paper. 

The term holder has been used very frequently in 
the previous discussions, and we may now pause to 
consider the rights of a holder of negotiable paper. 
One is said to be a bona-fide holder, or a holder in due 
course if he has purchased the instrument or it has 
been negotiated to him before the same became due, 
for value and without any notice on his part of any 
defects in the title. 



DEFENSE THAT MAY BE SET UP. 91 

The important thing to remember is that to consti- 
tute one a purchaser for value without notice, (a) he 
must have given a valuable consideration for the paper, 
(b) and taken it without knowledge of any facts which 
impeach its validity between antecedent parties. 

By value is meant any legal consideration that would 
be sufficient to support a contract. Of course the actual 
value paid will sometimes assist in determining whether 
or not the purchaser accepted with notice: For if one 
purchases an instrument for a sum considerably below 
its face value it would be safe to presume that he had 
some knowledge of a defect — for otherwise he could not 
secure it so cheaply. 

As to notice, he may either derive it actually or con- 
structively; actual notice if he has knowledge to which 
he dishonestly closes his eyes, constructive notice if he 
can derive it by an inspection of the face of the paper, 
for the purchaser is charged with notice of whatever 
appears thereon. 

It becomes material to know whether a person is a 
bona-fide purchaser or not because of the defense that 
may be set up against an instrument should the holder 
endeavor to enforce it. 

Defense that may be set up Against Holder. 

For a suit brought by a holder against a party to an 
instrument, two defenses may be set up. 

First. A real defense or one which attaches to the 
instrument itself and is good against all persons. 

Second. A personal defense or those which grow out 
of an agreement or the conduct of a particular person 
in regard to the instrument which renders it inequitable 
for him, though holding legal title to enforce it against 
the defendant. 



92 COMMERCIAL LAW. 

This latter class of defense is not available against 
a bona fide holder. 

Keal Defenses. 

Heal defenses commonly set up are: 

(1) Defendant has no capacity to make contract. 

(2) Illegality where contract is declared void by 
statutes : such as nsnry, forgery. 

(3) Discharge of paper by alteration, where one 
changes the amount of the instrument, or makes some 
other material alteration. 

Personal defenses commonly set up are : ( 1 ) fraud, 
(2) duress, (3) failure of consideration, (4) payment 
or release. 

Where a person is induced by fraud to issue a ne- 
gotiable instrument, he is liable thereon as against a 
bona fide holder, but if he is induced to sign a nego- 
tiable paper under the belief that he is signing a dif- 
ferent instrument he is not liable thereon even as 
against a bona fide holder, for in the latter event it is 
not his contract. 

PEACTICAL QUESTIONS ON BILLS AND 
NOTES. 

1. What is meant by "certification'' of a check? 

2. Answer subdivisions a, b, c, d and e, referring to 
the following instrument : 

$1375.25 Albany, N. Y., May 27, 1902, '^ 

Three months after date for value received I promise ta 

pay George Robinson or Order Thirteen Hundred, 

Seventy-five 25-100 Dollars At Morton National 

B'k, with interest at 6% per annum. 

William L. Hamilton 

(a) Wliat is the name of this instrument? 

(b) 1^0 what general class and to what specific class 

does it belong? 



PRACTICAL QUESTIONS ON BILLS AND NOTES. 93 

■(c) Does it contain an}^ unnecessary words, and if so. 

what are they? 
■(d) Assume that you have taken this paper in due 

course for value; on what day, where and by 

whom should payment be demanded? 
{e) If payment is not made when so demanded, what 

should be done and why? 

3. What is acceptance of a bill of exchange? 

4. Can an indorser dispute the genuineness of the 
signature of the maker of a note ? 

5. In what respect does the liability of an indorser 
of a promissory note differ from that of an ordinary 
surety ? 

6. A gives a negotiable note to B for $35. Subse- 
quently a demand arises in favor of A against B for 
$30. B transfers note before maturity to C for value 
without notice. C sues A on note. A sets up a counter- 
claim against B. Who should succeed? Give reason. 

7. A promissory note of the following form is dis- 
counted at the First National Bank : 

"Buffalo, N. Y., June 10, 1896. 
Three months after date for value received we promise to pay 
to the order of C $500 at the First National Bank with use. 
(Signed) A, Pres. X Corporation. 

B, Treas. X Corporation." 

A and B were authorized to issue notes for the cor- 
poration, and it was business paper. The bank had no 
notice of the transaction, except what was on the face of 
the paper. The bank sues A and B individually. Ar(5 
they liable ? Give your reasons. 

8. A, doing business in N^. Y. City, indorses in that 
city a promissory note which was dated and discounted 
there. His indorsement did not give specific directions 
as to where notice of protest should be sent, and the banJc 



94 COMMERCIAL LAW. 

duly mailed proof to the street and number in Albany 
where A resided. A failed to get the notice in time and 
thereby lost an opportunity of saving the debt. Is he 
liable on his indorsement, and why ? 

9. A negotiable promissory note, not usurious in its 
inception, but after maturity becomes so, comes into the 
hands of A, a bona fide holder for value, before maturity 
without notice. He sues the maker, who pleads the 
usury. State the rule governing the rights and lia- 
bilities of the maker and the owner of the note under 
the circumstances. 

10. A is the executor of an estate and gives the or- 
dinary promissory note for money borrowed for the es- 
tate and signs " A, Executor." Is there a personal lia- 
bility on the note against A? 

11. A is the financial agent of B and B is accustomed 
always to indorse notes that he sends by A to the bank 
to be cashed. B has a note payable to bearer. He sent 
it by A to be cashed at the bank, especially instructing 
him that it is payable to bearer and does not need to be 
indorsed. A presents the note at the bank and the bank 
refuses to accept it unless A indorses it. A informs the 
bank that B instructed him not to indorse the note, but 
the bank still refuses unless A indorses B's name. A 
then does so and receives $1,000 on the same and dis- 
appears. The maker becoming insolvent, the bank 
brings an action against B. Judgment for whom, and 
why? 

12. A holds check drawn upon X bank for B. As a 
matter of fact B's signature is a forgery, but A is igno- 
rant of the fact. A has the X bank certify the check. 
Later A presents the check for payment and the bank re- 
fuses to honor it. In an action by A against the bank 
the latter sets up forgery as a defense. State the rights 
of the parties. 



PRACTICAL QUESTIONS ON BILLS AND NOTES. 95 

13. A makes a note to B or order. It is duly in- 
dorsed b}^ B, C, D and E, the last indorsing it over to 
B, the original holder. Default and due notice, etc., in 
paying at maturity. B sues the maker and all the in- 
dorsers. Advise all parties. 

14. A, a resident of Oregon, borrows in New York 
City $5,000 from B, a resident of New York State, for 
use in Oregon. A note is given for security, dated New 
York City, payable in Oregon. The legal interest in 
Oregon is 10 per cent., in New York it is 6 per cent. 
Upon default suit is brought upon the note in New York 
State, claiming interest at 10 per cent. A sets up a de- 
fense of usury. What are the rights of the parties, and 
what law governs? 

15. A gives note to B, no interest being specified; B 
adds interest thereto and conveys the same before matur- 
ity to C, bona fide holder. Can C enforce the note 
against A for principal and interest ? 

16. A draws a check on First National Bank for 
$100. He indorses and transfers it to B for value. B 
indorses and transfers it to C for value. C indorses and 
transfers it to D for value, all within a reasonable time. 
The following day D presents it to the bank and has it 
certified. The next day the bank fails. State the extent 
of the liability of all the parties. 

17. A gives a note to B, of which the following is 
a copy: 

Rome, N. Y., Jan. 17, 1897. 
Thirty days after death, I promise to pay to B six thousand 
dollars for value received. 

(Signed) A. 

B is the son of A, and after A*s death sues the per* 
sonal representatives of A for the amount of the note 
What are the legal rights of the parties? 



96 COMMERCIAL LAW. 

18. A gives B liis promissory note for good consider- 
ation, payable at Mechanics' Bank, Troy, N. Y., at 12 M. 
On the day of payment B goes to the bank and inquires 
if the note is paid. B does not protest the note, but goes 
to A's place of business, tells him the note is not paid, 
and there demands pay of A. A refuses to pay. What 
are the rights of the parties? 

19. X is the maker of a promissory note. Y is an 
indorser who has a store in Buffalo, where he resides. 
Z is a farmer into whose hands the note has come in the 
regular course of business. On the day of maturity Z 
goes to X, and, showing the note, asks for the money, 
which X refuses to pay. Desiring to save notarial fees Z 
goes to Y's store the next day, and throwing the note 
down on the counter, says : " There, X has refused to 
pay that note and I want you to pay it." Y refuses, and 
in a few days thereafter, Z hears something of a notice 
of protest. Has the indorser been discharged? Dis- 
cuss fully. 

20. A makes a promissory note to B for $100, payable 
in one year after date at 4 per cent. : nothing is paid on 
the note for two years. How much is due? 

21. 

New York, Jan. 1, 1896. 
$1,000. 

On demand for value recei\'ed, we promise to pay to the order 
of C one thousand dollars, with interest. 

(Signed) A, Pres. of X Co. 
B, Treas. of X Co. 

A and B were authorized to issue bills on behalf of the 
X Co. This fact was known to C. A and B are sued on 
the note. What is their liability? State general rule. 

22. A owes B $500 and gives him, July 3, a certified 
check on the Adamant Bank. B pays the check to C, 



PRACTICAL QUESTIONS ON BILLS AND NOTES 97 

who allows it to be indorsed " without recourse." C 
surrenders a note against B due the same day, which 
note had been received from D regularly indorsed. C 
deposits the check, 11 :30 same day in Traders' Bank 
where he has a regular account. [All the transactions 
occur in the same city, which has no clearing-house.] 
The check was sent out for collection on the next bus- 
iness day, when it was found that the Adamant Bank 
had not opened its doors after closing on the afternoon 
of July 3, and had become insolvent. Who bears the 
loss? Why? 

23. Mention the characteristics that an instrument 
must possess in order to be negotiable. How is a 
negotiable instrument transferred? What is an ac- 
commodation indorser ? 

24. What are the main points of difference between 
a promissory note and a bill of exchange? How does a 
check differ from an ordinary bill of exchange ? Give an 
illustration of the proper way of signing a negotiable 
instrument for (a) a corporation by an officer, (b) an 
individual or firm by an agent or attorney. 

25. In the following draft what is the order of lia- 
bility, among themselves, of the parties to the instru- 
ment? 







g^/?WtW. A^cAA^A/ esS^UK/ AyeXt/ 



AtAyM\/ ■^i\AAyV\A»/eyri/ 



^^ 



^^^'^qo 




^ ^^. P^. C-frty Ih'^rAAkKKML 



98 COMMERCIAL LAW. 

The indorsement on the back of the instrument is : 

Wm. E. Carpenter 
Mark Cameron. 

26. In question 25, against whom can the holder of 
the instrument proceed ? 



CHAPTER VIII. 

SALES OF PERSONAL PEOPERTY. 

A sale of personal property is the transfer of the ab- 
solute, or general property in a thing for a money con- 
sideration. In this respect it differs from a barter, 
which is really an exchange of one piece of personal 
property for another. A sale also differs from a bail- 
ment in that the former transfers the title to the thing 
and the return must be the price in money; while the 
latter transfers only possession of the thing to the 
bailee, and the return must be the identical thing, even 
if in a somewhat changed form. 

A bargain and sale which means the immediate 
transfer of ownership, should not be confused with a 
contract to sell, which means the future transfer of 
ownership. In the latter case, certain essential elements 
must enter into the contract, viz. : Competent parties 
to contract, an agreement to sell, mutual assent of the 
parties to the subject matter of the sale and to the price 
in money to be paid therefor. The same principles 
apply as in other contracts generally. 

LOfC, 



100 commercial law. 

The Contract oe Sale. 

The sections of the Statute of Frauds dealing with 
sales should be carefully studied, as the majority 
of sales are embraced within the provisions of this 
statute, and its requirements should be strictly com- 
plied with. While a non-compliance does not void the 
contract, still, it may always be set up as a defense by 
the party charged. 

xis to contracts of sale not embraced within the sta- 
tute, there need be no special form, provided only that 
the essential elements of a contract shall be present, then 
will they be valid and may be enforced. They may be 
made by word of mouth ; the price may be made im- 
mediately, or promised for a future day; and the goods 
may be delivered at once, or at a future time. 

Where the Statute of Frauds applies as will be seen 
by referring to the Statute of Frauds, all sales exceed- 
ing a certain amount come within its provisions re- 
quiring a memorandum in writing. The memorandum 
need not assume any special form, so long as it con- 
tains all the terms of the agreement, viz. : The names 
of the parties ; or something whereby they may be iden- 
tified; the subject matter contracted for; and generally 
the price agreed upon. 

The memorandum should be signed by both parties; 
but it is sufficent if only the party to be charged, signs, 
so that each may have a memorandum signed by the 
other. 

Part Payment. 

When a contract of sale is made and part of the price 
given in payment, the contract will be binding even if 
no written memorandum has been made. The part 
payment takes the contract out of the statute. In some 
states the partial pa3rm.ent must be made at the time 



BARGAIN AND . SALE. 101 

of making the contract; but the general rule is that 
it may be made at any time before an action is brought 
on the contract. However, unless the payment is made 
at the time of making the contract, the seller may re- 
fuse to take it when it is tendered ; and if the purchaser 
sues the seller on the contract, no written memorandum 
having been made, the latter may hide behind the 
statute, using it as a defense. 

Acceptance of Goods. 

Another way of taking the contract out of the Statute 
and having a binding contract, although no written 
memorandum has been made, is by delivery of part of 
the goods under the contract, the seller may maintain 
an action against the buyer for the whole price; but, 
to be successful, the seller must show that the goods 
refused, conformed to the terms of the contract. 

When Title Passes. 

Excepting as to negotiable instruments, the general 
rule is that one who has no title to goods, cannot give 
title. A thief, therefore, cannot give good title to the 
thing stolen, and the purchaser must return it to its 
real owner. The purchaser's only redress is against his 
seller. 

Bargain and Sale. 

In a " bargain and sale '^ title passes at once even if 
the article is sold on credit. A oifers to sell his gold 
watch to B for $75. B accepts the offer. B immediately 
becomes the owner of the watch and must give A the 
$75, either at the same time, or if given a certain time,, 
when that time expires. 

A peculiar feature about a bargain and sale, " or 
present sale '^ in the United States generally is, although 



102 COMMERCIAL LAW. 

one would reasonably suppose that only things in ex- 
istence could be made the subjects of present sales, yet 
the natural products of things now owned by the seller, 
being considered as having a potential existence, may 
also be made the subjects of present sales; as, for in- 
stance, the future crops of the seller's land, milk to be 
gotten from his cow, the future offspring of his ani- 
mals, etc. As soon as these natural products come into 
existence, they belong to the purchaser. It should be 
carefully noted that this rule does not apply to the 
natural products of things which do not belong to the 
seller at the time of making the contract. 
Agreement to Sell. 

The passing of the title under this head will depend 
on the expressed or implied intention of the parties. 
When the time for the title to pass is expressed, noth- 
ing remains but to wait for that time to arrive. A 
buys a piano from B on the installment plan. It is 
agreed that A should have immediate possession, but 
that title in the piano should not pass to him until the 
last installment on the price is paid. Here the inten- 
tion of parties is expressed and title will not pass to 
A, nor can he give title to another, until the payment 
of the last installment. 

In some states, statutes have been passed requiring 
such a contract to be recorded; otherwise an innocent 
purchaser from A may take a good title. 

When the time for passing is not expressed, many 
difficulties may arise, and we must be guided largely 
by the rules laid down by the courts. 

1. In the case of a present sale, (where title passes 
at once) if, before the purchaser can take possession 
of his purchase, or reap any benefit from it, it is de- 
stroyed or lost to him, through no fault of the seller. 



AGREEMENT TO SELL. 103 

he (the purchaser) will, nevertheless, be liable to the 
seller for the price on the simple theory that the title 
has passed to the former and he has become the owner. 
A offers B a horse, the horse being in A's stable. B 
accepts the offer, but before he can take possession of 
the horse, the stable takes fire, and the horse is de- 
stroyed. B is still liable for the agreed price. 

2. It is clear that when the thing contracted for 
has neither a potential nor actual existence title to it 
cannot pass until it does come into existence. It may be 
something which is to be manufactured, or it may be 
something which is in existence, but must first be pro- 
cured by the seller, and then appropriated to the con- 
tract. In these cases, title passes when the thing has 
been manufactured, or procured, and actually appro- 
priated to the contract. The article must conform to 
that agreed upon and must be appropriated uncon- 
ditionally to the contract. 

3. Where some act remains to be done by the seller 
to the thing contracted for, title will not pass to the 
purchaser until that act is done. A contracts for a 
wagon which is to be painted red; title does not pass 
until the wagon is so painted. 

4. It very often happens that goods are sold on ap- 
proval, and until the purchaser expresses his approval, 
or implies it by keeping the goods and using them as 
his own, title will not pass. It is otherwise when goods 
are sold with the privilege to the buyer of returning 
them within a certain time. In this case title passes 
to the purchaser, but he has the privilege of transfer- 
ring the title back to the seller if he so desires. 

In all cases when title passes, he to whom it passes, 
is liable to the seller for the agreed price. 



104 commercial law. 

Duties of the Seller. 

It is the duty of the seller to transfer title in, and 
and give possession to the thing agreed upon, to the 
purchaser. 

As TO Title. 

Unless otherwise stated, the seller in the mere act 
of transferring title, to a thing in his possession, 
impliedly warrants that he has title and may so trans- 
fer it. Assignees in bankruptcy, sheriffs, etc., in their 
official capacity, can only transfer title to the extent 
of their official interest in the goods. 

As TO Possession. 

The seller is also bound to give possession of the 
thing to the buyer unless otherwise agreed. This, again, 
is conditional on the price being paid by the buyer, un- 
less credit is given him. In the absence of an agree- 
ment to the contrary, possession must be given, in case 
of a present sale, at the place where the goods are, or, 
in case of a future sale, at the seller's place of business. 

As TO the Thing Contracted For. 

1. Besides giving title in, and possession to the 
thing, the seller must also give the very thing contracted 
for. If the purchaser has full opportunity to examine 
the article, he should do so, because the seller will not 
be responsible if, later, the purchaser finds out that the 
quality is not what he thought it was. The sellei 
performs his duty when he delivers the thing agreed 
upon. The principle of " caveat emptor, let the buyei 
beware," applies here. 

Of course, it is different when the seller gives aii 
express warranty, an assurance as to the quality of 
condition of the article, upon which assurance the buyeT 



RIGHTS OF THE SELLER. 105 

is induced to buy. The warranty is not a part of the 
contract, but more in the nature of a collateral agree- 
ment upon the breach of which, the purchaser may hold 
the seller liable for damages. 

2. Very often, from the nature of the thing, the pur- 
chaser has no opportunity to examine it, but must rely 
on the seller to furnish what is wanted, the latter using 
his own judgment in so doing. If A buys a horse from 
B, describing the horse he wants as gentle, mild, and 
safe, the horse must comply with that description, or 
A may return it and recover back the price if he has 
already paid it. 

An article ordered by description must also be mer- 
chantable, and salable on the market. The seller can- 
not compel a purchaser to take goods which are unfit 
for the market. 

3. Again, a purchaser may order something for a 
particular purpose, informing the seller of that purpose 
and relying upon him to furnish the proper article. 
The seller must supply an article just suited for the 
expressed purpose, or the buyer need not pay for it, 
and may even sue the seller in damages, if he has suf- 
fered any through the seller's breach. 

Duties oe the Buyer. 

It is the buyer's duty to take title to the goods, to. 
take possession of them and to pay the price agreed 
upon. If the contract does not specify any time or 
price, the buyer should take possession of the goods 
within a reasonable time after title has passed to him, 
and he should pay a reasonable sum, or the market 
price for them. 
The Eights of the Seller. 

Where the title in, and possession of the property 
has passed to the buyer, and he refuses to pay, the 



106 COMMERCIAL LAW. 

seller's remedy is to sue for the price. The seller simply 
becomes a creditor of the buyer. But where the prop- 
erty has not yet passed, the buyer refusing to accept 
it when tendered under the contract, the seller's rem- 
edy will be a recovery in damages. Such a recovery is 
the market price, which is the reasonable value at the 
place and time for delivery. 

Seller's Lien. 

As long as the goods remain in the seller's posses- 
sion, he has a lien upon them for the contract price, 
limited to the difference between the contract price 
even though title to the goods is in the buyer, and this 
is true as against the buyer's assignee in bankruptcy, 
or a purchaser from the buyer. This lien is gone, how- 
ever, as soon as the goods have been delivered into the 
buyer's possession. 

Stoppage in Transit. 

This brings us to a very important right of the sel- 
ler. Under certain conditions, after the goods have 
been given to a common carrier, or an agent of the 
seller, to be delivered to the buyer, the seller has the 
right to stop the goods in transit and regain possession 
of them. This right continues until the goods are iu 
the buyer's possession. 

On the principle that "one man's goods shall not 
he applied to the pa}Tnent of another man's debt," this 
right of stoppage in transit may be exercised by the 
seller, where he can show that the buyer has commit- 
ted some act of insolvency, or that he is unable to pay 
his debts. 

Notice Eequired. 

In exercising this right, it is only necessary for the 
seller to give notice to the carrier not to deliver the 



RIGHTS OF THE BUYER. 107 

goods to the buyer. A steamboat or railroad company 
should be allowed a reasonable time to communicate the 
notice to its proper agents. If in a position to do so 
the seller may take actual possession of the goods from 
the carrier, before the buyer gets them. The carrier 
will be liable for the price of the goods if he violates a 
proper notice. 

Bill of Lading. 

A bill of lading is regarded as a negotiable instru- 
ment in a certain sense, in that it may pass to a pur- 
chaser for value in good faith a better title than the 
transferer has. If the seller sends the bill of lading 
for the goods to the buyer who transfers it for value 
to an innocent purchaser, the latter acquires the same 
right to the goods as though they had been actually de- 
livered to him by the buyer. In such a case, the seller 
loses his right to stoppage in transit. 

Eights of the Buyer. 

If the seller refuses to deliver the property to the 
buyer, the latter's remedy is to sue in damages for 
breach of contract, his recovery being limited to the 
difference between the contract price and the market 
value of the goods at the time and place they were to 
be delivered. There are instances, however, where the 
buyer cannot be compensated in damages and he may 
bring suit for specific performance to recover the very 
thing contracted for. WTiere the buyer can show spe- 
cial damages, he may recover the same in addition to 
his general damages; as would be the case when the 
buyer orders goods for a certain trade, but they are not 
delivered to him in time and he is unable to procure 
them elsewhere. He may show his loss in profits. 



108 commercial law. 

Eeeach of Warranty. 

The measure or damages for a breach of warranty will 
generally be the difference between the actual value of 
the thing sold and its value if it had been as represented. 
In case the buyer has not yet paid the price and the 
seller sues, the former may set up his claim for damages 
for breach as a partial defense. 

PKACTICAL QUESTIONS ON SALES OF 
PERSONAL PROPEETY. 

1. A sells a horse to B which he has bought in 
good faith. It afterwards turns out that the horse 
was stolen and the owner takes him away from B. Has 
he a right of action against anybody, and, if so, why? 

2. A buys from an agent by sample 100 barrels 
of flour. He discovers that it does not correspond with 
the sample. What right has A ? 

3. Explain the difference between a condition and 
a warranty in a contract of sale. 

4. A rented a farm with 10 cows thereon to B, with 
the agreement that B at the termination of the lease 
leave 10 cows on the farm of equal value, and pay him 
$5 per cow. The cows died from disease. What are 
the rights of the parties? 

5. A buys goods from sample from agent upon the 
warranty of the goods. They are not as represented. 
A sues the dealers and in defense they set up that the 
agent had no authority to warrant. Is it a good defense ? 

6. A duly sold to B, 1,000 tons of iron, which B 
wrongfully refused to accept and pay for. A consults 
you at once. What are his rights? 

7. A sells B 20 barrels of ale, barrels to be returned 
or paid for if not returned. B returns 10 barrels and 
is about to return the other 10 when a fire in his store, 



PEACTICAL QUESTIONS — SALES PERSONAL PROPERTY. 109 

arising through no fault of his (B's), destroys them. 
On whom does the loss fall? 

8. A sells B $2,000 worth of steel on June 1, to 
be delivered July 1, and on June 15, B tells A that he 
cannot pay for the goods and does not want same. 
What are the rights of A? 

9. E, with intent to make a sale^ tells F that a 
certain horse which he has shown him is sound. F 
examines the horse and finds that he is unsound, but 
buys him notwithstanding this fact. Can F rescind? 

10. A sells a horse to B, warranting him sound and 
all right; horse is unsound, which fact B could have 
discovered by inspection and inquiry. Has B any right 
of action against A ? If so, what are his rights ? 

11. A writes to B to ship him a bill of goods; B 
ships the goods C. 0. D. While they are on the rail- 
road they are destroyed by fire. What are the rights 
of the several parties? 

12. Where a delivery only is necessary to complete 
a contract of sale, can the buyer, by refusing to receive 
the property, throw the risk of injury or loss on the 
seller? What remedy or remedies has the seller? 
Explain. 

13. If the seller of goods agrees to send them to 
the buyer, no time being specified, what is the duty of 
the seller as to time? If, under a contract of sale of 
goods which the buyer has not seen, the seller delivers 
goods conforming to the contract requirement to a 
common carrier for transportation to the buyer, when 
does the title to such goods pass to the buyer? Who 
would bear the loss if the goods were injured in transit, 
the carrier not being at fault? 

14. State the leading principles of law that in a sale 
of personal property apply to, a) the seller, h) the buyer. 



110 COMMERCIAL LAW. 

15. A dealer buys from a farmer all the wheat in a 
certain bin, taking the farmer's tally as to the number 
of bushels. The farmer agrees to keep it for the buyer's 
accommodation till the following day. In the mean- 
time the grain is burned without fault of buyer or 
seller. Who bears the loss? Explain. 

16. Jones & Co. of Chicago ship pork by rail to Wes- 
ton at New York, one half of the purchase price hav- 
ing been paid; while the goods are on the way it is 
learned that Weston is insolvent. What, if anything, 
can be done by shippers to avert loss? Would yout 
answer be modified if the bill of lading had been trans- 
ferred to a third party for value? Explain. 

17. A sells goods to B without any understanding 
as to time of payment and allows B to take them away. 
In the absence of fraud, can A recover the goods be- 
cause B fails to pay the price on demand ? Give reasons. 



CHAPTER IX. 

GUAEANTY AND SUEETYSHIP. 

Distinction between Guaranty^ Suretyship^ and 
Indorsement. 

A surety or guarantor is one who becomes responsi- 
ble for the debt, default, or miscarriage of another per- 
son. These two terms (surety and guarantor) are often 
used without discrimination as though they meant the 
same thing. There is, however, a striking difference 
between them. The surety becomes bound with his 
principal by the same instrument and is a party to the 
instrument, executing it at the same time as the princi- 
pal; on the other hand, the guarantor enters into a 
separate undertaking and the principal is not a party. 

Another distinction to be noticed is that the surety 
is responsible in the first instance for the debt of his 
principal, while the guarantor becomes liable when de- 
fault is made by the principal, that is to say the con- 
tract of a guarantor is collateral and secondary. It 
differs in that respect from the contract of a surety 
which is direct; and in general the guarantor contracts 
to pay if by the use of due diligence the debt cannot be 
satisfied out of the principal debtor's property, while the 



112 COMMERCIAL LAW. 

surety undertakes directl}^ to be responsible for the pay- 
ment and so is liable at once, if the principal debtor 
defaults. By indorsement, the party indorsing assumes 
liabilities greater than that of the surety. If the instru- 
ment indorsed should for any cause be invalid the iu- 
dorser is nevertheless bound, as for the instance, if it 
is without consideration or the bill or note was forged; 
and while for these reasons the principal might be re- 
leased from payment, the indorser is still liable. 

Necessary Form and Eequisites of Guaranty. 

The guaranty being a promise, to become liable for 
the debt, default, or miscarriage of another, should be 
in writing. A simple request of A to B to give credit 
to C does not create a guaranty, nor would there be a 
guaranty if A writing of C to B says " you may be as- 
sured of C complying fully with any contracts or en- 
gagements he may enter into with you." There is 
nothing in the language to show that A promises to 
become liable for C's default. It is essential in order 
to hold one on a guaranty that there be found in the 
statement of the party who seeks to become guarantor, 
something upon which a liability will attach. That 
something need not necessarily contain the express 
words " I guarantee," but if from the language used it is 
possible to construe a promise to become responsible it 
will be sufficient. Thus A writes to B " You let C have 
the goods he wants, I shall make good if he don't." 
This is sufficient and binds A. 

Who May Act as Guarantor or Surety. 

Any person who has the legal capacity to enter into 
contracts may become a surety or guarantor. All tlje 
rules of contracts apply to this subject. Where infants 
enter into contracts of guaranty, the contract is simply 



CLASSES OF GUARANTEES. 113 

voidable only and may be affirmed by the infant when 
he arrives at majority, and when so affirmed is enforce- 
able. In some states by special statute a married woman 
may become a surety or guarantor by binding her sep- 
arate estate therefor. In many states there are statutes 
permitting the organization of companies for the par- 
ticular purpose of acting as suretys and guarantors of 
persons in both public and private undertakings. A 
partner may bind the partnership to act as surety or 
guarantor only with the consent of his co-partners or 
their subsequent ratification of this act. 

CiAssEs OF Guarantees. 

A guaranty may be either general, special, or contin- 
uing. In a general guaranty any person is entitled to 
advance money or incur liability upon conforming to 
its terms and afterwards can recover the same as though 
specially named therein. WTiere the guaranty is ad- 
dressed to a particular individual, firm, or corporation, 
it is a special guaranty and only the party therein named 
has a right to act on it and subsequently acquire the 
rights under it. A continuing guaranty contemplates a 
series of transactions and usually has no time limit, 
but the amount is limited. An illustration of a con- 
tinuing guaranty is the following: 

For good and valuable consideration, I, the undersigned, do 
guarantee the payment of all bills incurred by John Willis for 
goods sold to him by Smith Dry Goods Co., upon the usual 
terms, to the amount of One Thousand five hundred ($1500) 
Dollars,' for which payment this will act as a continuing guaranty. 

Samuel Hopkins. 
Dated, New York, April 4, 1906. 

It is well to note that in all such guaranty s, the 
guarantor has a right to insist upon a strict compliance 
with the terms as set forth in the guaranty before any 
liability may attach to him. 



114 COMMERCIAL LAW. 

A well known writer has said : " The guarantor is a 
favorite of the law. In many of the written contracts 
and engagements common to the business world that 
come before the courts for interpretation and adjudica- 
tion, it is competent to show what was the intention of 
the parties as evidenced by what was said or done at the 
time, but a guarantor is entitled to stand on the very 
letter of his contract; he is held only to just what the 
writing against him calls for." 

There are several classes of guaranty, to each of which 
different rules apply. It is difficult for lawyers and 
even judges to classify them as they come up for adjudi- 
cation. A layman can only act safely on a guaranty 
that is addressed to him personally. He should promptly 
notify the guarantor of his acceptance of the guaranty, 
and if a default occurs he should at once notify the 
guarantor of it. He must not extend the time of 
payment even for one day of the debt guaranteed. He 
must remember that certain guarantees are terminated 
by the death of the guarantor, whether the creditor be 
aware of it or not, and that the slightest change in the 
contract guaranteed without the consent of the guar- 
antor, will release him. 

Guaranty of Collection and Guaranty of Pay- 
ment. 
Another form of guaranty much in use in com- 
mercial affairs is either the guaranty of collection and 
the guaranty of pa3riiient of a debt on an instrument. 
Thus for illustration. Smith wishing to guaranty the' 
collection of Jones' debt on a promissory note, will da 
so by writing on the back of such note : 

For good consideration I hereby guaranty the collection of this 
note. John Smith. 



DEMAND AND NOTICE. 115 

If Smith desires to guaranty the pajrment of said 
note, he would write on the back of it: 

For value received I guaranty the payment of this note. 

John Smith. 

There is a great distinction between these two forms 
of guarantys, and this difference has been the subject of 
an able judicial opinion in a case arising in one of our 
states where this question was involved. The court there 
said: The fundamental distinction between a guaranty 
of payment and of collection is, that in the first case 
the guarantor undertakes unconditionally that the 
debtor will pay, and the creditor may upon default, 
proceed directly against the guarantor, without taking 
any steps to collect of the principal debtor, and the 
omission and neglect to proceed against him is not any 
defense to the guarantor ; while in the case of a guaranty 
of collection the undertaking is that, if the demand 
cannot be collected by legal proceedings, the guarantor 
will pay, and consequently legal proceedings against the 
principal debtor, and a failure to collect by those means 
are conditions precedent to the liability of the guarantor ; 
and to these the law, as established by numerous de- 
cisions, attaches the further condition that due diligence 
will be exercised by the creditor in enforcing his legal 
remedies against the debtor. 

Demand and Notice. 

In order to charge the guarantor upon his guaranty, 
it is essential that the creditor first make a demand upon 
the principal and due notice of his default be given 
within a reasonable time thereafter. If the principal 
be insolvent when the debt falls due this will not be 
necessary. The guarantor's obligation being secondary, 
it can readily be understood that before any liability 



116 COMMEPtCIxlL LAW. 

can attach as to him, his principal who is primarily 
liable must fail to perform his engagements. The 
creditors are not allowed to extend the credit of the 
principal to any great length of time after the debt be- 
comes dne; the guarantors have a right to insist that 
the risk of their responsibility be not unduly prolonged 
after default in payment of the debt of the principal; 
the creditor is therefor bound to make a demand with a 
reasonable diligence and give notice to the guarantor. 

Eights of the Guarantor. 

Where the guarantor pays the debt guaranteed, the 
law will imply a promise on the part of the principal to 
reimburse the guarantor, and the guarantor has an im- 
mediate right of action against the principal. 

Rights of Surety After Payment of Debt Against 
the Principal. 
A surety paying the debt of his principal, after de- 
fault of the latter has a right of action against him for 
repayment of the sum which the surety was obliged to 
pay. The law will imply a promise to pay if there 
is no express agreement between principal and surety, to 
that effect. The surety's right to indemnity from his 
principal does not accrue until the surety has paid the 
debt, or if the principal has broken an express agree- 
ment to do or not to do certain things, the surety may 
sue before payment of debt. 

Right of Surety Against the Creditor. 

After the creditor has been paid by the surety the 
latter is entitled to be substituted to all the rights and 
benef]*..s of security which the creditor had against the 
principal debtor. This transference or substitution of 
rights is called in law subrogation. If security had been 



DISCHARGE OF THE STUIETY. 117 

given to the creditor by both principal and surety, the 
surety would be entitled to have the creditor resort to 
the security given by the principal for the satisfaction- 
of his debt before he could apply that of the surety. 

Contribution of Co-Suretys. 

If several persons are suretys for another person, who 
defaults, and one of the suretys pays the entire debt, 
he has a right to demand that his co-suretys should con- 
tribute their share and may sue them for the same. Of 
course the suretys may make any contract as between 
themselves, as to the amount of their individual lia- 
bility and be bound accordingly. The death of a co- 
surety would not affect the right of contribution and 
the surety who paid the debt may bring an action 
against the estate of the co-surety for contribution. If 
any of the co-suretys are insolvent, contribution may be^ 
compelled among the solvent suretys for their pro rata 
share according to the number of solvent co-suretys. 

Discharge of the Surety. 

In the case of a continuing guaranty, the surety may 
be discharged from liability by the expiration of the 
time for which it was given, or by a notice from the 
guarantor to the creditor. If the guaranty is on a 
single instrument like a note, a bond, etc., he may be 
discharged from liability if there has been any alteration 
made in the instrument by which he was bound, or if" 
there is a change in any part of the agreement without 
his consent, as extending the time of the debtor for pay- 
ment, or if any fraud had been practiced on tho 
guarantor hy the debtor. 



118 COMMERCIAL LAW. 

PEACTICAL QUESTIONS ON GUARANTY 
AND SURETYSHIP. 

1. Is mere indulgence of the principal debtor by a 
creditor sufficient to discharge the surety? Give your 
reason for your answer. 

2. A buys a suit of clothes from a tailor. After- 
wards B writes that he will pay for the clothes. Is the 
promise binding? 

3. A became surety to B's bank for the faithful 
performance of the duties of X as bookkeeper. X 
was allowed to take the teller's place each day during the 
dinner hour of the latter, and while acting as teller he 
stole $10,000. A is sued on the bond and claims that 
he is not liable thereon. Is A liable? Why? 

4. A was surety for B on a contract made with C. 
C being about to enforce the contract made with B, 
agreed to extend B's time one year and did so without 
the knowledge of A. C seeks to enforce A's liability. 
Is he liable or not, and why? 

5. A surety on a contract is sued by B, who holds 
a chattel mortgage upon property belonging to the 
principal debtor as security. B has proceeded against 
A without exhausting his remedies against the princi- 
pal debtor. Can he collect from the surety, and what 
right has the surety? 

6. A is surety for the X corporation for the faith- 
ful performance of a contract to supply the city 
with water. The corporation is paid in advance, and 
upon being sued for the performance of a contract, 
the contract is declared by the court to be void, but 
the defendant is to repay the money received. Is the 
surety liable? 

7. A is surety for the firm of C on a bond to the 
extent of their purchases. Unbeknown to A, another 



QUESTIONS ON GUARANTY AND SURETYSHIP. 119 

partner is taken into the firm and afterward A is sued 
on the bond. AYhat are A's rights? 

8. A was surety, B principal, and C creditor on 
an obligation. B asked C to refrain from suing 
or pressing claim until B could pay same. C said 
he would be patient, but would not agree to give him 
any time. When due, B was solvent, but became in- 
solvent soon after. Surety had no knowledge of con- 
versation and C made no demand. C now sues surety 
for the debt. What are the rights of surety? 

9. A is employed in the X bank. He takes and 
appropriates to his own use from the bank's funds 
$1,000. This is afterwards discovered and A makes the 
amount good. He is retained in service on condition 
that B becomes surety for him. B becomes his surety 
without knowledge of the former embezzlement and the 
bank knows the fact, and that B does not know of it. A 
afterwards embezzles $1,000 and absconds. The bank 
brings an action against B as surety. Judgment for 
whom, and why ? 

10. B guarantees the payment of A's rent. A 
fails to pay and the landlord sues the guarantor with- 
out exhausting his remedy against the tenant. Can he 
maintain the action? Why? 

11. The following guaranty was given by Adam 
Schuab to E. P. Dodge Mfg. Co. : 

Hn COnSiDCtattOn of goods, wares, and merchandise which 
may hereafter be consigned, shipped, and delivered by E. P. Dodge 
Mfg. Co. to George E. Hih, of Dallas, Texas, as agent of the E. P. 
Dodge Mfg. Co., upon such terms as may be agreed upon between the 
said E. P. Dodge Mfg. Co. and the said Adam Schuab, do hereby gua- 
ranty that said George E. Hilt will hold and dispose of and account to 
said E. P. Dodge Mfg. Co. for all goods, wares, and merchandise as the 
said E.P. Dodge Mfg.Co may hereafter consign, ship and deHver to and 



120 COMMERCIAL LAW. 

require of the said George E. Hilt to hold, dispose of, and account for 
within twelve months after dale of this instrument, in strict accordance 
with the terms and agreement ;which may be entered into and agreed 
upon between said E. P. Dodge Mfg. Co., of the value not to exceed, 
however, five hundred dollars, of all goods, wares, and merchandise 
that may hereafter be consigned, shipped and delivered, by said E. P. 
Dodge Mfg. Co. to the said George E. Hill, to be held, disposed of, 
and accounted for to the said E. P Dodge Mfg. Co- by the said 
George E. Hilt within twelve months after this date. 

T>anas, Texas, Jan. 9, 1898. 

ADAM SCHUAB. 



The E. P. Dodge Co. sold goods to Hilt after receiv- 
ing this guaranty. Hilt failed to pay and the E. P. 
Dodge Co. now try to hold Adam Schnab on the guar- 
anty. Can they do so? Give your reason. 

12. A surety requests his creditor to sue the principal 
debtor, but the creditor neglects to do so. Five years 
after the creditor sues, but the debtor is insolvent. In 
an action to enforce, can the surety set up as a defense 
his request to sue as a bar to recovery? 

13. What is meant by the terms guaranty and surety- 
ship? In what respect does the liability of a guarantor 
differ from that of a surety? 

14. C wishes to buy goods of D on credit and asks E 
to become his security; whereupon E goes with C to D's 
ofl&ce and says, '' This man is good for all he buys ; I 
will answer for his debt." Does E become liable in 
ease C does not pay ? State the principle of law. 

15. The following guaranty was given: 



QUESTIONS ON GUARANTY AND SURETYSHIP. 121 

Chicago, January t4, t887. 

3fOr DalUe received), I hereby guarantee the prompt payment at 
maturity of any indebtedness owing to Reid, Murdock & Fisher by Mrs. 
Mathilde Zuckerman, of 370 State Street and 214 and 216 North 
Clark Street, Chicago, for goods purchased, or which may be purchased 
hereafter of them, to the amount of fifteen hundred dollars ($1,500.00) 
with interest on all the above indebtedness, according to the tenor and 
effect thereof, at the rate of eight per cent, per annum, and I agree to 
pay all costs or expenses paid or incurred in collecting the same. 

"[Signed at Chicago, this 14th day of January, 1887. 

** mitness : THOS. JOHNSON/' 

E. COHN» 
WM.TAGGERT- 

Immediately after receiving this guaranty, Eeid, 
M. & F. commenced selling goods to Mrs. Zuckerman, 
and the account continued to grow until ^NTovember 
24, 1887, when she failed. IN'o notice was given the 
guarantors of her defaults until 15 days after her 
failure. 

Can they be held liable on their guaranty? Give 
3^our reason. 



CHAPTER X. 

TNSUEAl^CE. 

What Is Insurance. 

Insurance is a system of business by which one party 
termed the insurer, for a certain agreed consideration, 
undertakes to indemnify another party termed the 
insured against pecuniary loss arising from the destruc- 
tion of, or injury to property from certain perils, as 
by fire, storm, or perils of the sea; or to pay a certain 
sum upon the death or physical disability of a specified 
person, or upon his attaining a certain age. 

PiRE Insurance: Insurable Interest. 

The object of all insurance is compensation for loss, 
not profit, consequently the party insured must have 
some appreciable pecuniary interest in the subject in- 
sured; in other words, an insurable interest. 

As to what constitutes an insurable interest one of the 
learned justices of our highest court lays down the rule 
in the following words: 

'• It would seem, therefore, that whenever there is a 
real interest to protect, and a person is so situated with 
respect to the subject of insurance that its destruction 
would or might be reasonably expected to impair the 



WARRANTY AND REPRESENTATION. 123 

value of that interest, an insurance on such interest 
would not be a wager within the statute, whether the 
interest was an ownership in, or a right to the posses- 
sion of the property, or simply an advantage of a pecu- 
niary character having a legal basis, but dependent upon 
the continued existence of the subject." 

Reinsurance. 

When an insurer feels that the risk he has assumed 
in effecting a certain insurance is too great to carry 
alone, and from prudent or convenient motives desires 
to protect himself from the liability under a policy 
issued, he may contract with another insurer to relieve 
him from that liability either in part or whole, by a 
policy of reinsurance. 

So if a loss occurs the insurer may sue the reinsurer 
before an actual pajTtient of the loss by the insurer. 
Should the first insurer, before payment by the rein- 
surer adjust the claim of the insured and compromise 
on the amount, this amount will be the limit of the 
insurer's recovery against the reinsurer. 

The insured cannot bring suit against the reinsurer, 
for he is not privy to that contract, but can only look to 
the first insurer for his loss. When the insured brings 
suit against the insurer, it is usual for the latter to 
permit the reinsurer to come in and defend the suit, 
and if the reinsurer failed to do so he would become 
responsible to the insurer for costs. 

Warranty and Eepresentation. 

A warranty is a statement of fact or promise of per- 
formance, relating to the subject of insurance or to the 
risk, inserted in the policy itself, or by reference ex- 
pressly made a part of it, which must be literally true 
or strictly complied with, or else the contract is avoided. 



124 COMMERCIAL LAW. 

A representation is an oral or written statement of facts 
or circumstances made at the time of, or before the 
contract relating to the proposed adventure, and upon 
which the agreement is made. 

Life Insurance. 

It will be noticed that under the contracts for fire 
and marine insurance, the insurer is entitled to receive 
Under the policy only such loss as he has actually 
sustained, not beyond the sum stipulated in the policy, 
or in other words the insurance company agrees to in- 
demnify him for his loss. 

Life insurance, however, is not such a contract of 
indemnity, but an agreement to pay a certain sum on 
the event therein specified, in consideration of the 
payment of certain premiums. 

It is a personal contract and applies to the person 
insured and not to a thing which is subject to a risk 
against which protection is sought. 

Life Insurance: Insurable Interest. 

Any one able to contract may effect a life insurance, 
providing one has an insurable interest in the life and 
health of himself; or of any person on whom he de- 
pends, wholly or in part, for education or support; of 
any person under a legal obligation to him for the 
payment of money; or respecting property or service 
of which death or illness might delay or prevent per- 
formance ; and of any person upon whose life any estate 
or interest vested in him depends. 

Examples — A wife has insurable interest in the 
life of her husband; a partner in the life of his co- 
partner; a creditor in the life of his debtor; a surety 
to a bond in the life of his principal, etc. 



KEPRESENTATIOX^ C0NCEAL:MEXT^ AND WARRANTYS. 125 

Eepresentation, Concealment^ and Warranty in 
Life Insurance. 

The contract of insurance is one requiring good faith 
between the parties, and if at any time either, before or 
after the issuance of the policy, there is fraud, it is fatal 
to the rights of the part}^ responsible for it, so that the 
intentional concealment of a material part from the 
insurers by the insured would avoid the policy. At the 
present time with the multitude of questions usually re- 
required to be answered upon application for insurance, 
any concealment of necessary and material facts is 
scarcely possible, unless done wilfully. 

Eepresentations are oral or written statements of fact, 
made at the time or before the contract relating to the 
subject matter thereof and upon the faith of which the 
contract was made. 

A material misrepresentation of fact, fraudulent, or 
even when innocent and unintentional, will avoid the 
contract. 

A warranty is a statement which either actually or 
by reference is incorporated in the policy itself, and 
whether material or not must be true, or if promissory, 
must be complied with, or the policy is avoided. 

The application for insurance is generally by the 
terms of the policy made a part thereof, so that if a 
person in his application states that he is thirty years 
old and it subsequently turns out that he was thirty- 
five years old, that would be sufficient to avoid the policy. 

Although the breach of warranty, or the misrepre- 
sentation or concealment may not contribute to the loss, 
the policy is still avoided, for the risk becomes a dif- 
ferent one from that which the insurer undertook. 



126 commercial lay7. 

Waiver and Estoppel. 

Since concealment, misrepresentation, and breach of 
warranty, all tend to avoid the contract and give rise 
to a forfeiture, in favor of the insurer or insurance 
company, they may be waived by acts of the company, 
or its agents, and the courts not favoring forfeitures, 
seize hold of any circumstances that indicate an election 
to waive or can be construed into a waiver. 

So a waiver may be expressed in writing or oral, and 
when the insurer has knowledge of facts that would 
work a forfeiture, but nevertheless, issues the policy 
and collects premiums, it will not subsequently be per- 
mitted to defeat the policy, for then it is said to have 
either waived such facts or it is estopped, i. e., not 
allowed to advance them for the purpose of working a 
forfeiture. 

The following would be an example of this : 

Eobbins desires to take out a policy of life insurance 
in the United States Insurance Co. For this purpose 
an agent of the insurance company visits Eobbins with 
the usual application blank. 

Among other questions asked are these: 

" Have you made application in any other Insurance 
Co. and been rejected ? " 

"' If rejected, why? " 

Eobbins, who can neither read nor write, answers 
both these questions to the agent, " I don't know," but 
the agent writes down on the application blank " no." 

After the application blank is turned in to the com- 
pany, it causes an investigation to be made and ascer- 
taines that Eobbins had made application in the Utopia 
Life Insurance Co., and been rejected because of a 
disease known as diabetes. The company, however, 
issues the policy and collects the premiums regularly. 



MEASURE OF INDEMNITY. 127 

On his death they contest recovery by the wife of 
Bobbins on the ground of misstatements in the applica- 
tion. In this they cannot succeed, being estopped by 
the knowledge of the facts. 

Marine Insurance. 

Marine insurance is the insurance against risks con- 
nected with navigation, to which ship, cargo, freight, 
etc., may be exposed during a certain voyage. 

There are three important things always to be borne 
in mind in a contract of marine insurance, namely : 

1. That the ship must be sea-worthy at the com- 
mencement of the risk. 

2. That there must be no voluntary deviations from 
the course of the voyage as fixed and described in the 
policy. The course being determined by mercantile 
usage. 

3. The adventure must be a legal one as regards 
its nature, and the manner in which it is carried out. 

AVhen a loss occurs, it may be either an actual total 
loss, as a ship so injured by the perils of the sea as to be 
incapable of repair; or a constructive total loss, as when 
the ship is abandoned on account of its destruction being 
highly probable. 

In the latter case notice must be given to the insurers. 
Where an abandonment of the ship, cargo, etc., is made, 
notice given, and accepted by the insurer, it is equivalent 
to a transfer by the insured of his interests in favor of 
the insurer. 

Measure of Indemnity. 

There are so many different forms of marine insur- 
ance contracts, that the liability upon a loss would 
depend upon the nature of the policy issued, certain 
rules of custom and usage governing the method of cal- 



128 COMMEFiCIAL LAW. 

culating the amount of liability. In a valued policy 
the value of the interest is agreed upon in advance, and 
is conclusive upon the insurer. 

PEACTICAL QUESTIONS ON INSUEANCE. 

1. What is the difference between a warranty and a 
representation in the law of insurance? 

2. What is re-insurance? 

3. A takes out a policy of fire insurance. It pro- 
vides that the policy shall be void if any mechanics, 
carpenters, etc., shall be employed in repairing houses 
for longer than 15 days without notice to the company. 
A employed carpenters on the house 30 days without 
notice being given. Afterwards, when the carpenters 
have left, and through cause in no way connected with 
their work, A's house burns. Can A' recover? 

4. The X Insurance Company insured the house of 
A. The policy contained this clause : " This entire 
policy, if the insured has any other contract of insur- 
ance on property covered, is void." At the time the 
policy was issued A had another policy on the house in 
the said X's company. A fire having occurred, the 
company tries to defend on the above-named ground. 
Judgment for whom, and why? 

5. A policy of life insurance contains a provision 
that it shall become void upon the failure to pay any 
premiums on the day they accrue. The insured forgot 
to pay the premium when it fell due, Jan. 1, 1896, and 
died the following May. After his death his personal 
representatives tendered the amount of the premiums 
with interest, and the insurance company refused to pay 
on the grounds that a forfeiture had occurred. What 
are the rights of the parties, and what principle of law is 
involved ? 



PRACTICAL QUESTIONS OX INSURANCE. 129 

6. A is indebted to B in the sum of $10,000. B, on 
his own account, takes out a policy of life insurance on 
A's life for $10,000 and pays all the premiums. A 
meanwhile pays up the $10,000 he owes B and then dies. 
To whom does the life insurance belong? 

T. A applies for a policy of insurance, and in reply 
to the question concerning his age, answers "' 53.'' The 
application states ** the applicant warrants all statements 
therein contained to be true,'' and A signs the same 
in good faith. The company discovers that at the time 
he was 55 years of age. They would have insured him 
at that age, the only difference being $iOO in premiums. 
The beneficiary, after the death of A, applies to you for 
advice. What would you tell him? 

8. An insurance policy provides that if the property 
insured now or hereafter has a chattel mortgage on it, 
the policy shall be void. A, the insurance agent for 
such company, insures B's personal property, there 
being at the time a chattel mortgage thereon which is 
filed in the town clerk's office. The property is destroyed 
by fire. B. not having made any concealment, and 
taving acted in good faith, brings suit against the in- 
surance company. The company claims the contract is 
void, because of the mortgage. Judgment for whom, 
and why? 

9. A takes insurance in B Insurance Company. 
Clause in poKcy states no other insurance allowed and 
policy will be void if other is taken. A afterwards se- 
cures another policy in same company. Is policy Xo. 1 
vitiated? A seeks to recover thereon. Can he do so? 

10. There is fire insurance upon a mill, which policy 
provides that it shall be null and void if the mill is 
inoperative for two weeks. The mill is closed and in- 
operative for one week in order that repairs to the 



130 COMMERCIAL LAW. 

machinery may be made. The next week it is inopera- 
tive because the miller is so sick he cannot work. The 
mill burns upon the last day of the two weeks. State 
the rights of the parties. 

11. A takes out a policy of life insurance and makes 
B, his wife, the beneficiary. In the application is a 
question, " Are you married, and if so, to whom ? " He 
answers, " Yes, to B," and warrants in writing that his 
answers are true. The policy contains a clause that if 
there are any false statements in the application the 
policy shall be void. In fact, A is living with B under 
a contract of marriage, but she is the wife of another 
man still living. A dies. The company refuses to pay. 
Can B recover? What point would determine the lia- 
bility of the company? 

12. What is meant by an insurable interest in respect 
to (a) fire insurance, (b) life insurance? Give two ex- 
amples of insurable interest under each case. 



CHAPTER XI. 

SHIPPING. 

Contract of Shipping or Atfkeighiment. 

An agreement to carry goods on board a vessel, irre- 
spective of the kind of goods or the nature of the vessel, 
is called a contract of shipping or affreightment. These 
contracts may be of rwo kinds. In the first class, one 
contracts for the conveyance of goods on board a ship, 
and the terms of snch contract are nsnally contained in 
a written instrnment called a bill of lading. In the 
second class are contracts bv charter-party. 

AYhai is a Chakter-Paktt. 

The contract by wliich the owner of a ship or other 
vessel lets the whole or part of her to another for the 
conveyance of goods, in consideration of the payment 
of freight, is called a charter-party. When the general 
owner of the vessel retains possession, coiomand, and 
navigation of it. and simply agrees to carry a cargo on 
freight for the voyage, the charter-party is a mere con- 
tract of affreightment, and the charterer is not invested 
with the rights of the owner of the voyage, and the 
general o^vner is liable for damage caused to the cargo. 
A person may. if he hires the vessel for the voyage and 
is to have exclusive control or possession of it, become 



132 COMMERCIAL LAW. 

owner for the voyage. In which case he may appoint 
the master and crew; become responsible for their acts; 
be responsible for damages and liabilities on contracts, 
as well as reserve the entire profits. This is like a lease 
of the vessel. 

The charter-party, which is a mere contract of 
affreightment usually contains these essentials, (a) the 
name of the parties to the contract and the ship or ves- 
sel chartered; (b) stipulation of the voyage to be per- 
formed; (c) nature of the goods to be carried; (d) 
covenants by the owner of the vessel as to its good con- 
dition and sea worthiness; and by the charterer to load 
and unload within a given time; (e) exemption of the 
owner from liability because of the perils, which he is 
unable to foresee or control, such as the acts of God, fire, 
perils of the sea, and public enemies; (f) any other con- 
ditions which the parties may introduce for their protec- 
tion or benefit, such as paying a demurrage which is the 
allowance of damage to the owner of the vessel by the 
charterer for each day's detention at a port, over and 
above that stated in the charter-party. 

The performance of the conditions in a charter-part}^ 
is imperative, and the things agreed to be done if pos- 
sible and lawful, must be done. 
Bill of Lading. 

T\niere the owner operating the vessel himself acts in 
the capacity of a common carrier, receiving and carry- 
ing the goods and merchandise for all who apply, the 
vessel is known as a general ship. The contract between 
the owner and the shipper is known as a bill of lading. 
It is a receipt for the quantity of goods shipped, and a 
promise to transport and deliver the same as therein 
agreed. The person who ships the goods is called the 
consignor and the one to whom the goods are sent is 
known as the consignee. 



BILL OF LADING. 

The following is a form of a bill of lading : 



133 



[BILL OP LADING. 



PENNSYLVANIA RAILROAD CO. 
PENNSYLVANIA COMPANY. 



• UNION LINE 



hF.CKIVED. subject lo Ihe cliLSSificM 




Sect on ihe datt of issue of this Bill of Ladiog, 
.Station /Z/^ ^ f JM^ 

ihe properly deecnbed beiow, in ftpparent good order, except as 

teots of packages unknown), m&rked, consigned and destined as indicated below, which said 

ill or any of said property 
any of said property, that 



..^,u, u^,» .»road,otberM-ise to deliver to another c»...w. 

of the rate of freight hereioftftcr named, as to each carr 

destination, and as to each part> at nny time interesteil in 

" " ^ '" hether prialed c 



formed hereiiii'lor shall be subject t 



roed to by the shipper and : 



1 Tor himself and t 



^MM^-^i^^^^^ 



Place,,. 






Rcule 



OF ARTICLES. 









Ctijrgei Aidvanced, $. 






The raw of fretghf ff oit»i 



pel lOOpouads;- 
Siith aa«* 



f-T-^Z} Third Cla». 

Ftat Glwa Fourth Class Special Claae: 

Fifth Claa 



R$ceU'ed $ ^_ 

to apply in prepayment of 
the charges on the property 
described above. 






Agent. 



;?« 



13 

:o?o 
•S3O 

f|j> 

3ff3 CD 

o»; r 

11! r" 

11% 



This bill of lading is made out in triplicate, the mas- 
ter of the vessel retaining one copy and the other two 
the shipper keeps, mailing one of them to the consignee, 
the person to whom the goods are shipped. 



134 commercial law. 

By Whom Issued. 

A bill of lading must be issued by the carrier or his, 
or its representative. From the nature of the business 
in which he is engaged, the master of a vessel which is 
employed in the transportation of goods and merchan- 
dise has authority to make a contract to carry freight, 
and unless the shipper has knowledge to the contrary, 
a bill of lading issued by the master will bind the owner. 

The master of the vessel should not sign the bill of 
lading till the goods are delivered on board the boat or 
at the wharf, nor should he ever sign them in blank. 
If all the goods intended to be covered by the bill of lad- 
ing are not delivered at one time, he may issue receipts 
for those goods that are delivered, and then when all 
the goods have been delivered issue a bill of lading cov- 
ering the receipts. 

Operation and Effect of the Bill of Lading. 

A bill of lading is regarded as a receipt and as a con- 
tract. In the latter aspect it is conclusive between the 
shipper and the owner, but as a receipt it may be contra- 
dicted as to the ownership of the cargo or the quan- 
tity or condition of the goods. As a contract, the bill 
of lading imports the storage of goods under deck, the 
law presuming that obligation on the owner. 

The bill of lading also vests the legal title to the 
property in the consignee. Whoever holds the bill of 
lading has the ownership of the goods and their re- 
moval will not affect his title. 

Transfer of Title by Indorsement of Bill of 
Lading. 

The indorsement and delivery of a bill of lading by 
the consignee will operate as a transfer of the property 
to indorsee. It is often asserted that a bill of lading 



SALVAGE. 135 

is negotiable and may be negotiated in the same way 
as a bill or note, but tliis is not so, and the reason for it 
not being so, can easily be understood, when it is recalled 
that negotiability may be predicated of bills of exchange 
and promissory notes, because they are representatives of 
money, which is in itself negotiable, but on the other 
hand, bills of lading do not stand as representatives of 
mone}^ but of those goods therein described. Statutes 
have been passed in a number of states by which the bill 
of lading and certain instruments of a like character are 
assimilated in a greater or less degree to instruments 
strictly negotiable, but it has been held in the construc- 
tion of such statutes that they do not have the effect of 
totally changing the character of bills of lading and 
placing them in all respects on a footing with negoti- 
able instruments proper. 
Salvage. 

The definition of salvas^e o^iven bv a well known writer 
on admiralty is as follows: Salvage is a service ren- 
dered in the rescue or relief of property at sea in immi- 
nent peril of loss or deterioration. It must be service 
rendered to save the property from an impending peril 
and not from a possible future peril. Salvage is also 
the compensation or reward of those who engage in sal- 
vage service and such compensation is awarded only to 
those who actually accomplish the rescue. It must be 
noticed that the master, mate, or sailors cannot as a gen- 
eral rule, obtain salvage by saving their own vessel, for 
they are paid for that and it is a part of their duty, but 
only for the rescue of another vessel. There are men 
living along the coasts of our country known as salvors 
who make the rescuing of property from the sea their 
sole occupation and reap quite an independent living 
out of the same. 



136 commercial law. 

Bottomry or Maritime Loans. 

It often happens that in the course of a voyage the 
ship becomes disabled, due to storms or other perils of 
the sea. In this emergency it becomes necessary for 
the captain to put in at the nearest port for repairs. He 
may strike a port in which he, his ship, and the owner 
are well known and therefore has no difficulty in secur- 
ing a loan of money with which to have the repairs 
made. But if he strikes a port in which he is not 
known, there would be much difficulty experienced by 
him in securing a loan were it not for the fact that the 
admiralty law authorizes the execution of a bond se- 
curing the party who makes the loan. This is known 
as a bottomry bond and it is an obligation executed, 
generally in a foreign port by the master of a vessel, 
for repayment of advances to supply necessaries or re- 
pairs, together with such interests as may be agreed 
upon and which may be enforced in Admiralty Court 
in case of the safe arrival of the vessel in its port of des- 
tination, but becomes absolutely void in case of her loss 
before arrival. This maritime loan is called bottomry, 
because the keel or bottom of the boat is pledged as se- 
curity for the loan. The lender running a great risk 
because of the perils of the sea, may charge any rate of 
interest on the loan that he and the master of the ship 
agree upon. If however, the lender should take advan- 
tage of the necessities of the borrower and exact a greater 
rate of interest than the circumstances warrant, a Court 
of Admiralty may be induced to step in and settle the 
interest. The master cannot enter into a contract of 
bottomry when there is sufficient money aboard the ves- 
sel to pay the ship's expenses, nor can he enter into such 
contract except in case of great distress, with no other 



RULE OF GENERAL AVERAGE. 137 

means of relief, or inability to obtain the money in any 
other way. 

The master may also obtain a loan upon the mer- 
chandise on board of the ship, and this is called respon- 
dentia. The payment is made dependent upon the safe 
arrival of the vessel, so as in bottomry the lender must 
run this marine risk to be entitled to charge marine 
interest. 

EuLE OF General Average. 

It often becomes necessary in the proper manage- 
ment of a vessel to sacrifice a portion of the cargo in 
order to save the ship and the rest of the cargo. Gen- 
eral average is an implied contract by the owners of the 
vessel, cargo, and freight, with respect to contribution 
for loss sustained by one or more for the benefit of all. 
If A, B, C, and D are each independently interested in a 
cargo which is shipped on a general ship, and A's cargo 
is thrown over-board to save the cargo of B, C, and D, as 
a matter of justice, they should each contribute pro 
rata for the loss sustained by A. 

It is necessary that a common danger exist and that 
the sacrifice of the goods be voluntary. Whatever the 
master does in distress, for the preservation of the whole, 
as in cutting away masts, or throwing goods overboard 
to lighten his vessel, is brought into general average. 

It is essential that the sacrifice be successful in sav- 
ing the property, for if there is nothing saved there can 
be no general average. 

PEACTICAL QUESTIONS ON SHIPPING. 

1. The Angora, a three-masted schooner, while lying- 
in wharfage in the harbor of New York, suddenly be- 
came on fire. The fire department was immediately 
notified and sent a company of its men, who put out the 



138 COMMERCIAL LAW. 

iire and saved the vessel. These firemen now claim 
salvage in having effected the rescue of the vessel. Is 
their claim good? Give yonr reasons. 

2. A ship, having been wrecked after a severe storm, 
was abandoned at sea and deserted by all the crew ex- 
cept A, B, and C, who remained on board and saved 
her at great risk to their own lives. Are they entitled 
to salvage? 

3. The United States owned the Justin and 
Yosemite, two men-of-war. The Yosemite was wrecked 
and the crew of the Justin saved considerable personal 
property belonging to the United States from the wreck 
of the Yosemite. Are they entitled to salvage ? 

4. What is meant by a charter party? A bill of 
lading? By whom is the latter issued? 

5. What is a bottomry bond? Give an illustration 
under which such a bond could be issued. 

6. What should a bill of lading contain? By whom 
should it be signed? 

7. As between the ship-owner and the shipper, what 
is the character of the bill of lading in respect to the 
goods received? May it be contradicted? 

8. Does the same character exist as between a ship- 
owner and an assignee of the bill of lading for value? 
Explain. 

9. What is understood by "demurrage"? 



CHAPTER XII. 

BAILMENTS. 

What is a Bailment. 

A bailment is where personal property is delivered by 
one person to another, to keep, to use, to improve, or to 
repair, and to return when the purpose is accomplished ; 
or to sell, or transport and deliver to a third party. 

Bailor and Bailee. 

The party or person entrusting the property is called 
the bailor, the one receiving it on such trust is called 
the bailee. 

Distinction between a Bailment and a Sale. 

If the thing entrusted to the bailee is to be returned 
though in a changed form, as where grain is delivered 
to be returned as meal, it is a bailment. If the thing 
however, is not to be returned, but its equivalent is to be 
in a different form, or to be paid for in money, it is a 
sale. 

It is important to bear this distinction in mind, for 
if there is a bailment only, and the property is de- 
stroyed while in the possession of the bailee without his 
fault, the loss would fall on the bailor. If on the other 



140 COMMERCIAL LAW. 

hand the transaction was a sale, the loss would fall on 
the other party or bailee. 

Goods Taken on the Installment Plan. 

In recent commercial transactions, where personal 
property such as sets of books, phonographs, sewing-ma- 
chines, etc., are transferred on the installment plan 
system of payments, wherein by a certain agreement in 
writing, the receiver of the goods binds himself to pay 
at certain stated intervals, certain sums of money a& 
rent for the goods, so that when the whole amount is 
paid, the property should belong to the receiver, but 
until such amount is paid, title vests in the owner, with 
the privilege of reclaiming on default in pa3rment; the 
question often arises whether such a transaction is a bail- 
ment, sale, or lease. 

The trend of modern judicial decisions, is that trans- 
actions of that nature are sales. If no rent is to be 
paid, and the article is to be paid for within a definite 
time or returned in default of such pa3rm.ents, then 
that constitutes a bailment. 

Division or Bailments. 

Depending upon the degree of care or diligence re- 
quired from the bailee, bailments may be divided into 
tliree classes, as follows : 

First. — Where the transaction is gratuitous and for 
the exclusive benefit of one of the parties, as in the case 
of a naked deposit or the loan of an article, where only 
slight care and diligence are required. 

Second. — Where compensation is made to the bailor, 
but the transaction is for the benefit of both parties, 
as in the case of the hiring or pawning of a chattel, and 
only ordinary care and diligence are required. 



THE DEGREE OF CARE REQUIRED. 141 

Third. — Where compensation is made to the bailee, 
but the transaction is for the benefit of both parties, 
as in the case of common carriers and innkepers, and 
extraordinary care and diligence are required. 

Examples of Bailments of the First Class. 

In this class the bailment is for the benefit of the 
bailor, without any benefit or compensation to the bailee 
— so where the proprietor of an apartment house per- 
mits a tenant to store his trunks, bicycles, and other 
portable baggage in a store room of the building with- 
out charge he becomes a bailee, or where a prospective 
purchaser enters a merchant's store for the purpose of 
buying a coat and while trying on the new coat lays 
the old one on the counter, the merchant becomes a 
bailee and if he provides no place for it, fails to give 
warning to purchaser to look out for it, and makes no 
rules requiring the employees to look out for it, he is 
liable if it is lost. 

The Degree of Care Eequired. 

Since the bailee in cases similar to the ones mentioned 
above, receives no compensation as such, the degree of 
care expected from him is in proportion, that is, he only 
becomes liable in case of fraud or gross neglect with re- 
spect to the goods. It has been said that a bailee of 
goods coming under this class of bailments is " bound 
only to such care of the article left with him, as he 
takes of his own j^roperty of a similar kind.'' 

Thus a leading case in this country which illustrates 
this foregoing principle, is the one where a chest of gold 
was deposited in a bank for gratuitous safe-keeping, 
without any special undertaking, and the gold was 
fraudulently appropriated by the cashier, it was decided 
by the court that the bank was not liable to the depositor. 



142 commercial law. 

Use of the Property. 

If a bailee of this class of bailments uses the property 
entrusted to him, contrary to an implied agreement he 
may be liable. Thus in a case recorded where a bag 
of jewels was deposited with a goldsmith for safe keep- 
ing, and the goldsmith broke the seal of the bag and 
pawned the jewels for borrowed money, he became li- 
able as for a conversion of the jewels. 

This theory is limited only to such a usage of the prop- 
erty as to bring a benefit to the bailee, but does not 
include a use that would benefit the property, as for 
example, the milking of a cow, exercising draught 
animals, and also if the use will not injure the prop- 
erty, as the reading of a book deposited with the bailee 
for safe keeping. 

The Degree of Care Eequired in Second Class 
OF Bailments. 

The bailee in this class of bailments is bound to ex- 
ercise reasonable diligence and is responsible for gross 
negligence. To determine the diligence or negligence 
one must look at the circumstances and the character 
of the property. So in the case of the bailment of 
money, jewels, or fragile goods, greater diligence must 
be exercised than in case of goods of less valuable or per- 
ishable property. If the bailee exercises towards the 
bailed goods the same kind of care that he does to his 
own that is all that can be reasonably required, provid- 
ing, however, that he is not grossly careless in the care 
of his own goods. 

Degree of Care and Responsibility in the Third 
Class of Bailments. 
In this class of bailments there is imposed on the 
bailee the duty of exercising the greatest amount of 



THE PLEDGE OR PAWN. 



143 



diligence and care and he becomes liable for slight neg- 
ligence on his part. 

The following table briefly sums up the degree of care 
requisite, and the responsibility imposed in the differ- 
ent classes of bailments : 





Care and dilige 


'nee 


Negligence for which 




exacted 


of 


the 


bailee becomes 




bailee. 






liable. 


First Class. 










Bailments for bail- 










or's sole benefit. 


Slight. 






Gross. 


Second Class. 










Bailments for mu- 










tual benefit. 


Ordinary. 






Ordinary. 


Third Class. 










Bailments for bail- 










ee's benefit. 


Great. 






SUght. 



The Pledge or Pawn. 

Of the bailments mutually beneficial to the parties, is 
the pledge or pawn which is the bailment of a chattel 
by debtor to creditor to be kept by him as security until 
the debt is paid, and then returned, or if not paid to be 
realized and applied by virtue of legal proceedings, or 
upon notice. 

The benefit to the debtor, (pledger or pawner), being 
represented by that debt or engagement, which he is 
bound to make good and the benefit to the creditor 
(pledgee or pawnee), consisting in the additional means 
thus afforded him of obtaining the desired satisfaction 
or fulfillment thereof. 

Collateral Security. 

In this connection it is proper to note that of recent 
times, commercial paper, stocks, bonds, etc., have been 
found very convenient for pledges; that brokers and 
bankers have coined another term for the pledging of 
such articles, namely collateral security. 



144 COMMERCIAL LAW. 

Practically there is no difference between the two, if 
3^ou take some personal property for pledging to the 
pawnbroker, and we must remember that there is no 
distinction as to the nature of the property that can be 
pledged; it may be great or small, clothes or bonds, 
jewelry or notes, and it will be termed a pledge ; but if 
the same articles are taken to a broker or banker and 
pledged, they are called collateral. 

Pledge Distinguished from Chattel Mortgage. 

A chattel mortgage carries over to the party intended 
to be secured, title to the property mortgaged with a 
provision in the title that if payment be truly and duly 
made on the mortgagor's obligation, title is defeated 
and revests in the mortgagor; under a pledge, however, 
the secured party is merely a bailee. In the case of a 
bailment the security rests in the bailee having posses- 
sion of the actual article pending the fulfillment of a 
certain obligation while in the case of a chattel mort- 
gage security lies in the title to the articles. 

The following is the usual form of a chattel mortgage : 
TO ALL TO WHOM THESE PRESENTS SHALL COME, 
KNOW YE THAT John Smith of the first part, for securing the 
payment of the money hereinafter mentioned, and in considera- 
tion of the sum of one dollar to me duly paid by Albert Williams 
of the second part, at or before the ensealing and delivery of 
these presents, the receipt whereof is hereby acknowledged, have 
bargained and sold, and by these presents do grant, bargain and 
sell unto the said party of the second part, 10 sewing machines 
and all other goods and chattels mentioned in the schedule 
hereunto annexed, and now in the premises located at No. 70 
John St., New York City. 

To HAVE AND TO HOLD, all and singular goods and chattels 
above bargained and sold, or intended so to be, unto the said 
party of the second part, his executors, adm.inistrators and 
assigns for ever. And I the said party of the first part, for my- 
self, my heirs, executors and administrators, all and singular 



CHATTEL MORTGAGE. 145 

the said goods and chattels above bargained and sold unto the said 
party of the second part, his heirs, executors, administrators and 
assigns, against myself the said party of the first part and against 
all and every person or persons whomsoever, shall and will 
warrant, and for ever defend. 

Upon Condition, that if I the said party of the first part, 
shall and do well and truly pay unto the said party of the second 
part, his executors, administrators or assigns, the sum of Four 
Hundred ($400) Dollars on or before the 12th day of December 
1905, then these presents shall be void. And I the said party 
of the first part, for myself, my executors, administrators and 
assigns, do covenant and agree to and with the said party of the 
second part, his executors, administrators and assigns, that in 
case default shall be made in the payment of the said sum above 
mentioned, then it shall and may be lawful for, and I the said 
jxirty of the first part, do hereby authorize and empower the 
said party of the second part, his executors, administrators and 
assigns, with the aid and assistance of any person or persons, to 
enter my dwelling-house, store, and other premises and such 
other place or places as the said goods or chattels are or may be 
placed, and take and carry away the said goods or chattels, and 
to sell and dispose of the same for the best price they can obtain; 
and out of the money arising therefrom, to retain and pay the 
said sum above mentioned, and all charges touching the same; 
rendering the overplus (if any) unto me or to my executors, ad- 
ministrators or assigns. And until default be made in the pay- 
ment of the said sum of money I am to remain and continue in 
the quiet and peaceable possession of the said goods and chattels, 
and the full and free enjoyment of the same. If from any cause 
said property shall fail to satisfy said debt, interest, costs and 
charges, the said John Smith, party of the first part, covenants 
and agrees to pay the deficiency. 

In Witness whereof, I the said party of the first part, have 
hereunto set my hand and seal the 12th day of December, one 
thousand nine hundred and four. 

John Smith. 
Sealed and delivered in the presence of 
Walter Abbott. 

SCHEDULE REFERRED TO IN THE FOREGOING 
MORTGAGE. 

10 Sewing Machines — numbered respectively 1005 to 1014 
inclusive. 



146 COMMERCIAL LAW. 

1-3 horse-power electric motor. 

1-3 horse-power electric motor, steel shafting, straps and 
belts. 

1 kit of repair tools. , 

State of New York,"! 
County of New York./ 

On the 12th day of December in the year one thousand nine 
hundred and four before me personally came John Smith to 
me known and known, to me to be the individual described in, 
and who executed the foregoing instrument, and who acknowl- 
edged that he executed the same 

A. K. Bell, 

Notary Public, 
New York County. 

What May Be Pledged and For What. 

Every kind of personal property, including not only 
chattels, but stocks, mortgages, insurance policies, etc., 
may be pledged. 

Pledges may be made for payments of an existing 
debt, for a future debt as by further advances, or one to 
come into existence. 

What May Not Be Pledged. 

There are some things usually forbidden to be pledged, 
as government pensions, bounties, and the pay of 
soldiers and sailors. To these latter the law holds out 
a protecting hand, on the theory that they are commonly 
improvident and out of easy reach of the courts. 

Degree of Care Exacted for Pledge. 

The pledgee must exercise ordinary care, and is re- 
sponsible for gross negligence and damage to the 
pledged property which may be set off against the debt. 
Should the pledge be lost, the pledgee must first 
exonerate himself from the imputation of negligence 
before he can recover his debt. 



remedies of the pledgee. 147 

Eight of Possession of Pledge. 

The pledgee is entitled to possession as against the 
pledgor and all the world, except the real owner, if such 
owner has not consented to this pledge. Thus the 
pledgee may maintain an action against the pledgor 
for wrongfully retaining or obtaining the thing pledged, 
and against third parties for the conversion of it. 
Should the pledgee give up possession of the thing 
pledged to the pledgor, even for a short time only, the 
bailment is at an end and the pledgor, if a dishonest 
person, could sell or pledge the property to another 
person and thereby defeat the first pledgee's right and 
interest in it. 

Duty or Pledgee to Keturn. 

On payment of the debt or a tender thereof, the pledgee 
must return the article pledged, and if he refuses the 
pledgor may maintain an action in replevin; or if he 
has so dealt with the article that it cannot be returned, 
whether this be accomplished by an unlawful sale or by 
the use of the pledged article, the pledgee becomes lia- 
ble for its conversion. 

Eemedies of the Pledgee. 

When the pledgor's debt becomes due and he fails 
to pay it, the pledgee may use one of the following 
remedies : 

1. He may sell the pledge, giving the pledgor notice 
of the time and place of such sale, after calling on him 
to redeem the pledged article. 

2. He may enforce the pledge by a suit in the nature 
of foreclosure proceedings. 

3. He may proceed against the pledgor personally 
and disregard the pledge. 



148 commercial law. 

Pawnbrokeks, 

Everyone knows what a pawnbroker is and if asked 
to dejfine one, would say, a person who makes it a busi- 
ness to lend money on the pledge of personal property, 
;sneh as clothing, watches, jewelry, pictures, etc. The 
pawnbroker's business is subject to license, and in 
nearly every state is regulated by statute. The pawn- 
broker is regarded as " a banker to the poor man," and 
because his dealings are mostly with the poor people, 
the law has wisely hedged his occupation with such 
rules and restrictions as to amply protect the poor and 
to prevent him from taking undue advantage of their 
pressing need and condition. 
The Hire of Chattels for Personal Use. 

In this class of bailments, the bailor allows a person 
to have the use of the thing, as for intance, where one 
hires a rowboat for a certain time, a typewriter, a 
bicycle, or a fancy dress costume for a masque ball, such 
person becomes the bailee of the thing hired and is 
bound to observe these rules : 

1. That he shall use the thing with care. 

2. That he shall not put the thing hired to any other 
use than the one stipulated. 

3. That he shall return it at the agreed time and 
place and pay the hire therefor. 

Keeping or Storage. 

This kind of bailment arises where one delivers 
property to another for safekeeping for hire. The care 
and attention required would be dependent upon the 
nature of the property; thus the storage of furniture 
for example, would not require any active care or at- 
tention on the part of the bailee, but the pasturing of 
cattle or boarding of horses by a livery-stable keeper 
would require a greater am.ount of care and attention. 



WAREHOUSEMEN. 149- 

These bailees are held answerable for any greater^ 
than slight negligence. 

Warehousemen. 

One who, for pay, stores goods in a building is a 
warehouseman. He must exercise ordinary care for 
the protection of goods entrusted to him. 

Warehous£:\ien's Lien. 

The warehouseman has a lien on the goods in his 
custody for charges on the bailment. This lien simply 
means the warehouseman's right to retain the goods 
until he is paid. 

Warehouse Eeceipts. 

Warehouse receipts are issued by the warehouseman 
on the receipt of the property entrusted to him, and 
contains a promise to deliver to the owner, or on his 
order the same amount and kind of goods stored on 
payment of the charges. These receipts by many of' 
our states have been declared negotiable, so that the 
owner by endorsing and delivering such receipt passes 
title to a third party as though he had made an actual 
delivery of the goods themselves. The following is the 
usual form of such receipts: 

CON^SOLIDATED STOEAGE ELEYATOE. 

New York, Oct. 30, 1905. 
RECEm:D in store of John L. Parson, twenty hundred bushels 
No. 8 wheat, which amount, and same quaUty by grade, will be 
delivered to the owner of this receipt, or his order, as pro\'ided 
by law and the rules of the railroad and warehouse commissiona- 
of New York, upon surrender thereof and pajTnent of lawful 
charges. This grain is insured for the benefit of the owner. :u ^ 

L. B. Watts, 

Manager. 



150 COMMERCIAL LAW. 

COMMOI^ CAEEIEES. ' 

What is a Common Carrier. 

A common carrier is one who undertakes, as a public 
employment, the transportation or carriage of goods 
for persons generally, from place to place, whether by 
land or by water, and to deliver them at the place ap- 
pointed, for hire or reward and with or without agree- 
ment as to the price. 

Being a public employment there is a legal obligation 
and duty with respect to the transportation, for the 
common carrier must carry for all alike who comply with 
the terms as to freight, etc. If on the other hand, the 
carrier may decide the goods and the persons for whom 
he will carry them, then the carrier acts as a private 
individual and has the right to make his own price and 
contract, and when so made to stand upon them. The 
law has surrounded the common carriers with duties 
and responsibilities which they avoid, limit, or shake 
off; while as to private carriers, it has never attempted 
to hamper them with stringent rules or to prevent them 
from exercising their own judgment as to the responsi- 
bilities which they are willing to assume. 

Who Are Common Carriers. 

Whether a person is a common carrier depends wholly 
upon whether he holds himself out to the world as such, 
and he can hold himself out as a common carrier by 
engaging in the business generally, or by announcing 
or proclaiming it by cards, advertisements, or by any 
other means that would let the public know that he 
intended to be a common or general carrier for the 
public. 



liability of common carrier. 151 

When Common Carriers May Eefuse to Carry 
Goods. 
There are certain circumstances under which a com- 
mon carrier may refuse to carry goods; when for 
instance, the articles or parcels to be carried are not 
properly packed; when the medium of transportation, 
the ship, car, or wagon is full; when the character of 
the goods offered for transportation does not come under 
the class of goods the particular common carrier holds 
himself out as carrying; or when a fair and reasonable 
pa3rment for the transportation is not made in advance. 

Liability of Common Carrier. 

Under the law, unless a special contract can be shown 
limiting the right and duties of the parties, a common 
carrier is liable for failure to deliver the property en- 
trusted to it safely to the consignee or owner. Its liabil- 
ity is not limited to losses which are the result of its neg- 
ligence, but extends to any loss however caused, except- 
ing only those losses or injuries caused by an act of God 
or the public enemy or through the sender's negligence. 
This practically means that the common carrier by 
accepting the goods becomes an insurer of their safe 
delivery. 

Eeason for the Liability. 

The liability of a common carrier to the sender is 
imposed by law and exists independently of any special 
contract, having its foundation in the policy of the law 
arising out of the hardship which would result to the 
sender if any other rule be adopted. 

When goods are delivered to a common carrier they 
are usually no longer under the eyes of the owner, as he 
seldom follows or sends any servant with them to the 
place of their destination. If they should be lost or iii> 



152 COMMERCIAL LAW. 

jured by the grossest negligence of the carrier or his serv- 
ants, or stolen by them, or by thieves in collusion with 
them, the owner would be unable to prove either of these 
causes of loss. His witnesses must be the carrier's 
servants, and they, knowing that they could not be con- 
tradicted, would excuse their masters and themselves. 
To give due security to property, the law has added 
to that responsibility of a carrier which immediately 
arises out of this contract to carry for a reward, namely, 
that of taking all reasonable care of it; the responsi- 
bility of an insurer. 

AVhen the Eule of Liability Does not Apply. 

The common carrier is not responsible for the loss, 
damage, or destruction of goods entrusted to his care, 
where the same is accomplished by an act of God, a 
public enemy, or the fault of the sender or the bailor. 

An act of God would be such a sudden, violent, irre- 
sistible act of nature as could not have been foreseen or 
prevented by the exercise of reasonable diligence, care 
and skill on the part of the carrier. Examples of acts 
of God would be lightning, earthquakes, tornadoes, etc. 

By the public enemy is meant those engaged in war 
against the government, and would include pirates and 
buccaneers, etc., but it would not include thieves and 
robbers, nor a mob engaged in unlawful violence. 

^^^ere some act on the part of the bailor is respons- 
ible for damage caused to the goods entrusted to the 
common carrier's care the latter is relieved from lia- 
bility. Illustration of this would be when the sender 
ships perishable goods out of season, goods not properly 
packed; where the shipper has concealed the character 
of the property shipped so as to have same go through 
at a low rate. Thus money was concealed in a sack of 



TELEGRAPH COMPANIES. 153 

coffee; valuable jewelery in a bag of hay, etc. By such 
deception the carrier is relieved of his liability as in- 
surer, since the effect of deceiving the carrier was to 
reduce the care and diligence with which the property 
was guarded. 

Common Carrier's Lien. 

While the goods remain in the common carrier's 
possession he has a lien upon them for the transportation 
charges, and where he is compelled to store them pend- 
ing their delivery the common carrier also has a lien for 
the storage charges. By virtue of this lien the carrier 
upon giving proper notice as provided by the statutes, 
may sell the goods at public auction and out of the pro- 
ceeds take the amount of his charges and give the bal- 
ance to the sender. 

TELEGEAPH COMPANIES. 

Telegraph companies have been likened to common 
carriers, in that they are bound to serve the public with- 
out discrimination. They are not insurers, but are re- 
sponsible for any damage caused by their negiligence in 
the transmission of messages. Such companies are 
under obligation to accept all proper messages, and to 
transmit them in the order in which they are received, 
except where circumstances would justify a different 
practice. The company may make just and reasonable 
regulations for the conduct of its business, and those 
seeking to avail themselves of its facilities for trans- 
mitting messages are bound by such regulations. 

Duty of the Company. 

The telegraph company must accept for transmis- 
sion all proper messages, if the sender complies or agrees 



154 COMMERCIAL LAW. 

to comply with the reasonable rules of the company. If 
the lines of the company should be down or out of order 
or for any other reason it is unable to transmit the mes- 
sage, and the company with knowledge of these de- 
fects accepts the message without first informing the 
sender, it becomes responsible for failure to transmit. 
The company is bound to transmit the message with- 
out delay, and for negligent failure to do so, becomes 
liable to the person injured thereby. It is also bound 
to transmit the message correctly, and while not an in- 
surer, it nevertheless becomes responsible for any er- 
rors in transmitting the message when the same is the 
result of its want of care. The company is also bound 
to deliver all messages properly and sufficiently ad- 
dressed, and where the messsage is addressed to the ad- 
dressee " in care of " a third person, delivery to that 
third person will be sufficient. The company should de- 
liver a written copy of the message to the adressee. 
A verbal communication of the same is not sufficient, 
unless the addressee specially consents to so receive it. 

Stipulations in Contract Limiting Liability. 

The telegraph company may make reasonable stipu- 
lations, qualifying its liability for errors, failures and 
delays, but in nearly all the states it has been decided, 
that the company cannot stipulate for immunity from li- 
ability for the consequences of its own negligence or that 
of its servants or agents. 

The following contract for the sending of a message 
is familiar to all, but the effect of the stipulations on the 
back thereof is not commonly known and deserves at- 
tention : 



TELEGRAPH CONTRACT. 



165 



& ?. 




The back of the above contract is as follows 



156 COMMERCIAL LAW. 

ALL MESSAGES TAKEN BY THIS COMPANY ARE SUB- 
JECT' TO THE FOLLOWING TERMS: 

To guard against mistakes or delays, the sender of a message 
should order it repeated; that is, telegraphed back to the 
originating office for comparison. For this, one-half the regu- 
lar rate is charged in addition. It is agreed between the sender 
of the following message and this Company, that said Company 
shall not be liable for mistakes or delays in the transmission or 
delivery, or for non-delivery of any unrepeated message, be- 
yond the amount received for sending the same; nor for mis- 
takes or delays in the transmission or delivery, or for non-deUvery 
of any repeated message, beyond fifty times the sum received 
for sending the same, unless specially insured, nor in any case 
for delays arising from unavoidable interruption in the working 
of its lines, or for errors in cipher or obscure messages. And this 
Company is hereby made the agent of the sender, without 
liability, to forward any message over the lines of any other 
Company when necessary to reach its destination. 

Correctness in the transmission of a message to any point on 
the lines of this Company can be insured by contract in writing, 
stating agreed amount of risk, and payment of premium thereon, 
at the following rates, in addition to the usual charge for re- 
peated messages, viz, one per cent, for any distance not exceed- 
ing 1,000 miles, and two per cent, for any greater distance. 
No employee of the Company is authorized to vary the foregoing 
No responsibility regarding messages attaches to this Com- 
pany until the same are presented and accepted at one of its 
transmitting offices; and if a message is sent to such office by one 
of the Company's messengers, he acts for that purpose as the 
agent of the sender. 

Messages will be delivered free within the established free de- 
livery limits of the terminal office. For delivery at a greater 
distance, a special charge will be made to cover the cost of such 
delivery. 

The Company will not be liable for damages or statutory 
penalties in any case where the claim is not presented in writing 
within sixty days after the message is filed with the Company for 
t ransmission. 

Robert C. Clowry, President and General 

Manager. 



INN-KEEPERS 157 

The first stipulation in the above telegram, is to 
guard against liability from error in transmission unless 
the message has been ordered repeated. There is much 
difference of opinion as to the validity of this stipula- 
tion, some jurisdictions holding it to be invalid, because 
they regard it as a mere device by the company to evade 
liability for the consequences of its own negligence, and 
therefore void. On the other hand, in the United States 
Supreme Court and many of the State Courts the stip- 
ulation has been held a valid and binding one, on the 
theory that every company engaged in a public under- 
taking may provide, for the conduct of its business, 
reasonable rules and regulations, and all who enter into 
contract with the company for the transmission of mes- 
sages are subject to such rules. 

The stipulation requiring claims to be filed within 
a certain time has been held not an unreasonable one, 
where the time fixed is not too short to prevent the party 
claiming damages to become aware of his injury and 
present his claim properly. But some of the State 
Courts have held this stipulation as invalid, as con- 
trary to public policy, and as attempting to establish 
a limitation, other than that fixed by the Statute of 
Limitations. 

Inn-Keepers. 

Under the subject of bailments it is proper to con- 
sider the relations between inn-keepers and their guests, 
because the law of bailments is specially adapted to pro- 
tect the chattels and goods of the person who, relying 
upon the accommodation and inducements of the inn- 
keeper, intrusts his person and property to the inn- 
keeper's care. 



158 commercial law. 

Who Are Inn-Keepers. 

An inn-keeper, be it either an individual, copartner- 
ship or a corporation, is a party who holds out that he 
will receive all travelers and sojourners who are will- 
ing to pay a price adequate to the sort of accommoda- 
tion provided, and who comes in a condition in which 
they are fit to be received. Since the business of inn- 
keeper is regarded as a public employment, those 
engaged in the same are under obligation to receive and 
entertain as guests all who choose to stop at their inn, 
providing the person seeking the accomodation is a fit 
person and the inn-keeper has room. Thus, he is not 
bound to receive a person who is drunk, disorderly or 
otherwise objectionable, or one afflicted with a catching 
disease, or one unable to pay the price of his entertain- 
ment. 

Who is A Guest. 

It is not an easy thing with the multitude of conflict- 
ing decisions on the subject to give a fixed rule for 
determining what state of facts will constitute a person 
a guest within the contemplation of this topic. Com- 
monly a guest is a temporary sojourner who puts up at 
an inn with the object of receiving lodging and enter- 
tainment from day to day, coming and going as he 
pleases, being transient, and having no bargain for a 
fixed time. On the other hand, if one remains upon 
a special contract for a fixed time, he is generally con- 
sidered more as a boarder or lodger than as a guest. 

Generally speaking, however, no governing test can be 
given to ascertain whether a person is a boarder, lodger 
or guest, and each case must be determined by the jury 
upon the facts surrounding the same. 



inn-keeper's liability for effects of his guests 159 

Inn-Keeper^", Liability for the Effects of His 
Guest. 

The inn-keeper is under an obligation to keep the 
goods of his guest safely so that no loss shall happen 
through his fault or that of his servants, or through 
any other person for whose presence in the inn, the inn- 
keeper is responsible. For a breach of this duty the 
inn-keeper is liable in damages to the party who has 
sustained the loss. This rule has been established in 
all jurisdictions for the protection of travelers against 
the neglect or dishonesty of inn-keepers and their 
servants. 

There are certain exceptions to this general rule of 
liability of the inn-keeper to his guest. Thus, for in- 
stance, losses occurring through the act of God or of a 
public enemy would relieve the inn-keeper from re- 
sponsibility, ^or would the inn-keeper be responsible 
if the loss was occasioned through the negligence of the 
guest, and in determining whether or not there was 
any negligence on the part of the guest, all the circum- 
stances of the case must be considered, and it would be a 
question for a jury to decide whether the particular 
acts committed by the guest or the particular omission 
to act are sufficient to show negligence. 

It is important to note that before any liability what- 
soever would attach on the part of the inn-keeper, it is 
necessary that the relationship of inn-keeper and guest 
should exist at the time that the loss or injury is sus- 
tained. So, if the guest departs from the inn and 
leaves his goods behind and there is a loss after 
departure, the inn-keeper is not responsible unless it 
has been left there with the consent of the inn-keeper, 
in which event he remains liable for a reasonable length 
of time, to be determined according to the circumstances 



160 COMMERCIAL LAW. 

of the case. In some jurisdictions it has been deter- 
mined that the liability does not cease instantly on 
the departure of the guest, but remains for a reasonable 
time thereafter. Thus, in a New York case on this 
point, where the question of liability on the part of the 
inn-keeper arose, the Court decided : 

" An inn-keeper's liability for the baggage of his 
guest is not terminated the instant the guest pays his 
bill and leaves the hotel, but continues for such a rea- 
sonable time thereafter as may be necessary for him 
to secure its removal; or if the inn-keeper, in the ordi- 
nary course of his business, undertakes its removal to a 
railroad or to some other common carrier, until he has 
made such performance. '^ 

Inn-Keeper's Lien on the Goods of His Guest. 

Inasmuch as the law imposes heavy liability upon the 
inn-keeper with respect to his guest, it also invests him 
with the great privilege of protecting himself as to the 
payment of the reasonable charges incurred by the guest. 
The law gives the inn-keeper a lien on the goods brought 
into the inn by the guest and received by the inn-keeper 
as such, even though such goods are not the guest's 
property. If the goods taken in are not the ordinary 
traveling baggage of the person stopping at the inn, 
and the inn-keeper has knowledge that they are the 
property of a third person, his lien does not attach. 

Should the inn-keeper permit the goods upon which 
his lien has attached io be taken away, his lien would 
be lost, except if fraud has been practiced upon him in 
the taking away of the same. 

PEACTICAL QUTESTIONS ON BAILMENTS. 
1. A leaves his horse in first class condition with B 
to board at the agreed price of $20 per month, telling 



PRACTICAL QUESTIONS ON BAILMENTS. 161 

B that lie is not to use the horse, and is only to give 
him such exercise as can be given with a halter. B 
does not heed his instructions and allows his wife to 
drive the horse, as a result of which the animal becomes 
foundered. When A finds this out he refuses to pay 
board any longer for the horse and abandons him as 
utterly worthless. ^Yh.at action will A bring and what 
will be the measure of damages? 

2. A checked his trunk at the X. Y. C. & H. E. E. 
E. Co. in Xew York City for Albany., and the next 
day called for his trunk at Albany. It could not be 
found. A sues the company, proves the delivery to the 
company, the contract, the demand, and value. The 
company does not offer any evidence. Judgment for 
whom, and why? 

3. Furniture is shipped from Yonkers to Eoches- 
ter. Upon its arrival at Eochester the consignee is 
notified by the carrier, who then places it in the freight 
house. At the end of a week no request or attempt at 
a delivery having been made, the freight house is burned 
by an incendiary and the property destroyed. The 
consignee sues the carrier. What are the rights of the 
parties ? 

4. Goods are transported by a common carrier to 
Buffalo. The train is derailed and train wreckers 
secure some of the freight. The owners of the freight 
sue the railroad company. Is the railroad company 
liable? 

5. A, an inhabitant of Cairo, 111., shipped goods by 
Illinois Central to Byron Eoger, 50 Chambers Street, 
New York City. At Buffalo the New York Central, 
by its traffic arrangement with the Illinois Central, took 
the goods for the purpose of carrying them through to 
New York. By an error of the N. Y. C. agents the ad- 



162 COMMERCIAL LAW. 

dress became changed to Brian & Eoger, and as the lat- 
ter was an unknown firm in New York, after nine days, 
in which the railroad tried to find the adressee, the 
railroad stored the goods with a reputable warehouse- 
man. The goods were subsequently destroyed by fire, 
through no fault of the bailee. The consignor wishes 
to bring suit for the goods. Whom should you ad- 
vise him to sue? Did the N. Y. C. R. R. use all dili- 
gence required of it? What is the duty of a railroad 
with regard to goods received as these goods were? 

6. A delivers goods to the B. R. R. Co. under an 
oral contract, and after the company had begun the 
transit, but during the same day, the agent of the com- 
pany hands A, a bill of lading that contains provis- 
ions which are inconsistent with the oral contract. The 
goods are lost, and then A sues on the oral contract. 
The company sets up the receipt and retention of the 
bill of lading. W^hat are the rights of the parties? 

7. A takes 50 bushels of wheat to a miller to be made 
into flour. Miller sells the wheat to B. What right has^ 
A in the matter ? 

8. A bargains with a carriage manufacturer to re- 
pair four wagons for $25. each. He repairs three and 
A takes them away. When A goes for the fourth, the 
carriage manufacturer refuses to let it go unless A pays 
him $100. earned. A tenders him $25. What are the 
rights of the parties? 

9. Does the relation of bailor and bailee exist be- 
tween a bank and its depositors? 

10. A bailee receiving property under instructions 
to deliver it to no one except upon a written order from 
the bailor, delivered the property to the bailor's wife 
upon an order that proved to be forged, what rights, 
if any, has the bailor? Give your reason for the- 
answer ? 



PRACTICAL QUESTIONS ON BAILMENTS. 163 

11. A sent 5,000 books to be bound to X, the same 
to be delivered in lots of 1,000 each after they were 
bound, for which the binder was to receive 50 cents per 
volume. The binder delivered 4,000 volumes to A and 
neither demands or receives the cash therefor on de- 
livery. A tenders him 50 cents per volume for the re- 
maining 1,000 and demands them, but the binder re- 
fuses to deliver them unless the man (A) pays him for 
the other 4,000 volumes already delivered. "What prin- 
ciple of law is involved? 

12. A delivers to a miller 1,000 bushels of wheat 
for which he is to receive 200 barrels of flour. The mil- 
ler puts the wheat in his grainery and this is destroyed 
by fire. Upon whom does the loss fall? 

13. A leaves a Avatch with a jeweler to be repaired. 
The shop was burglariously broken into without fault of 
the jeweler and A's watch was stolen. A brings an 
action against the jeweler. Can he recover? State the 
rule. 

14. A brings a wagon to B for repairs. It is worth 
$25 when taken. B repairs the wagon, increasing its 
value to $100. C has a judgment against B, and offers 
A $25 for his interest in the wagon. A refuses to accept 
it. C then levies on the wagon and sells it under his 
judgment against B. A brings an action against C. 
Can he recover, and what is the extent of the recovery ? 

15. A pledges with B two diamond studs. B places 
one of the studs in his safe, and the other he wears in 
his necktie. Thereafter the stud in the safe is stolen, 
and subsequently thereto, the one in the necktie was 
also stolen. A demands the return of the diamonds. 
Can be recover. 

16. A contract for the transmission and delivery of 
a telegram was made in West Virginia, but was to be 



164 COMMERCIAL LAW. 

consiiimnated by delivery in Kentucky, and the negli- 
gence complained of consisted of delay in delivery oc- 
curring mainly in Kentucky. The law of which State 
governs ? 

17. M^s offer to sell lumber at $35 per thousand 
was negligently transmitted by the telegraph company, 
so as to read $25, and was accepted and the lumber 
furnished by M without knowledge of the mistake. Is 
M entitled to recover from the telegraph company for 
the resulting damage ? 

18. B brought an action against a telegraph com- 
pany for negligence in failing to deliver a message ten- 
dering to B an option on cotton. It appeared that B 
had a contract for 100 bales of cotton, and bought 50 
bales on one day, to fill their contract, at 9 11-16 cents 
a pound, and 50 bales the next at 9% cents, in ig- 
norance of the option tendered them by telegram on 
100 bales at 9 cents, which telegram was delayed in 
delivery. Is B entitled to recover? 



CHAPTER XIII. 

PAETNEESHIP. 

What is a Partnership? 

Judge Story defines partnership as follows : " Part- 
nership, often called co-partnership, is "usually defined to 
be a voluntary contract between two or more competent 
persons to place their money, effects, labor, and skill, 
or some or all of them in lawful commerce or business 
with the understanding that there shall be a commun- 
ion of profits thereof between them." Numerous other 
definitions have been framed by various writers, but the 
one selected is the most convenient and thorough, for 
it contains the necessary elements to be found in every 
partnership, jiamely : 

(a) an agreement fixing the legal relation of the 
parties. 

(b) competent persons. 

(c) lawful purpose. 

(d) business owned in common. 

(e) business carried on for common benefit and joint 
profit. 

Each of these elements will be considered subse- 
quently. 



166 COMMERCIAL LAW. 

There may be instances where persons combine in a 
project, but do not intend to form a partnership. 
Nevertheless, they cannot evade the legal relation result- 
ing from the combination, if the purpose is to carry on 
business for their joint profit. 

Firm is Xot a Legal Entity. 

In the subject of corporations, we have learned that 
a corporation by a legal fiction, is regarded as a legal 
person or entity, separate and distinct from its mem- 
bers or stockholders; but a partnership as such has no 
legal existence apart from its individual members. So 
a firm dong business under the name of Arkwright & 
Wells could not bring suit under that name, but must 
do so in the individual names of James Arkwright and 
John Wells. Also the property the firm owned be- 
long to them individually, and each partner would be 
liable for the debts. They could not be debtors or credit- 
ors of the firm, but each could be the creditor or debtor 
of his co-partner. In some of the states, statutes have 
been enacted recognizing a co-partnership as a legal 
entity and permits them to sue and be sued in the firm 
name. 

EORMATION OF A PARTNERSHIP. 

A partnership is formed by an agreement between the 
parties. The agreement need not be in writing, but it 
is always best to have regular articles of an agreement 
drawn up. The following articles of a co-partnership 
illustrate the form of such agreement : 

ARTICLES OF AGREEMENT, Made the 15th day of August 
one thousand nine hundred and four, BETWEEN Lawrence 
Hart of New York City, N. Y., party of the first part, and Harry 
Biddle, New York City, N. Y., party of the second part as fol- 
lows: The said parties above named agree to become co-partners 



CO-PARTNERSHIP AGREEMENT 167 

in the business of general outfitters and clothiers, and by these 
presents agree to be co-partners together under and by the name 
or firm of Hart & Biddle in buying, selling, and vending all sorts 
of goods, wares, and merchandise to the said business belonging, 
and to occupy the store located at No. 780 Broadway, New York 
City, N. Y. 

Their co-partnership to commence on the 15th day of August, 
1904, and to continue to the 15th day of August 1907, and to 
that end and purpose the said Lawrence Hart has contributed 
stock of the value of $1500 and the said Harry Biddle has con- 
tributed stock of the value of $1500 to be used and employed 
between them for the support and management of the said busi- 
ness to their mutual benefit and advantage. 

And it is agreed by and between the parties to these presents, 
that at all times during the continuance of their co-partnership, 
they and^.each of them, or their duly authorized representative 
will give their attendance, and to each of their best endeavors, 
and to the^.utmost of their skill and power, exert themselves for 
their joint interest, profit, benefit and advantage, and truly 
employ, buy, and sell merchandise with their joint stock, and 
the increase thereof, in the business aforesaid. 

And also, that they shall and will at all times during the said 
co-partnership, bear, pay, and discharge equally between them, 
all rents and other expenses that may be required for the sup- 
port and management of the said business; and that all gains, 
profit, and increase, that shall come, grow, or arise from or by 
means , of the said business, shall be divided between them equally, 
and all loss that shall happen to their joint business by ill com- 
modities, bad debts, or otherwise, shall be borne and paid be- 
tween them equally. 

And it is agreed by and between the said parties, that there 
shall be had and kept at all times during the continuance of their 
co-partnership, perfect, just and true books of account, wherein 
each of the said co-partners shall enter and set down as well, all 
money by them or either of them received, paid, laid out and 
expended in and about the said business, as also all goods, 
wares, cormnodities. and merchandise, by them or either of 
them, bought or sold, by reason or account of said business, and 
all other matters and things whatsoever to the said business and 
the management thereof in anywise belonging; said books shall 
be used in common between the said co-partners, so that either 



168 COMMERCIAL LAW. 

of them may have access thereto, without any interruption or 
hindrance of the other. 

And also the said co-partners, once in each year^,on the 31st 
day of December, or oftener, if necessary, shall make, yield, or 
render, each to the other, a true, just, and perfect inventory and 
account of all profits and increase by them or either of them, 
sustained; and also all payments, receipts, disbursements, land 
all other things by them made, received, disbursed, acted, done, 
or suffered in this co-partnership and business; and the same 
amount so made, shall, and will clear, adjust pay|jand deliver, 
each to the other at the time their just share of the profits and 
losses. 

And the said parties hereby mutually covenant and agree, to 
and with each other, that during the continuance of the said 
co-partnership, neither of them shall nor will endorse any note, 
or otherwise become surety for any person or persons whomso- 
ever, without the consent of the other, the said co-partner^ 
And at the end or other sooner termination of their co-partner- 
ship, the said co-partners each to the other, shall and will make 
a true, just, and final account of all things relating to their said 
business, and in all things truly adjust the same; and all and 
every stock, as well as the gains and increase thereof which shall 
appear to be remaining, either in money, goods, wares, debts or 
otherwise, shall be divided between them. 

It is agreed in case of a disagreement or dispute as to any 
matter relating to the co-partnership, each partner shall appoint 
a representative as arbitrator, and the two representatives thus 
appointed shall select a third person and the decision of the 
majority shall be binding. 

IN WITNESS WHEREOF the parties hereto have hereunto 
set their hands and seals the day first above mentioned, 

Lawrence Hart, 
Harry Biddle. 
State of New York,! ^ 
County of New York, j 

On this 15th day of August, 1904, before me personally came, 
Lawrence Hart and Harry Biddle to me known, and known to 
me to be the individuals described in and who executed the 
foregoing instrument and who severally duly acknowledged to- 
me that they executed the same. 

R. L. Jackson, 
Notary Public, 
New York City 



BUSINESS OWNED IN COMMON 169 

From the above articles of agreement it can readily 
be inferred, that the partnership relation is not created 
by law, but by the common consent of the parties to the 
agreement. It is a voluntary association of the mem- 
bers, and no person can become a member of the firm 
without the consent of all the partners. 

Competent Persons. 

In general, any one having the legal capacity to make 
contracts may be a partner. An infant may be a part- 
ner, and it would seem, while such, he has all the right 
and powers of a partner, and his interest in the firm 
property remains liable for the firm debts. His contract 
of partnership is, however, voidable, and he may use his 
infancy as a defense against personal liability. 

Labor and skill enter into the combination, as well 
as capital. They are equally essential to the success 
of the partnership. 

Lawful Purpose. 

The business must be a lawful one. Partnerships 
cannot be lawfully formed for the purpose of carrying 
on an illegal business, or one which is opposed to moral- 
ity or public policy. The business may be real estate, 
manufacturing, farming, mining, trading; it extends 
to professions, la^vyer, accountant, doctor, etc. But a 
single transaction will not constitute a partnership 
business. 

Business Owned in Common. 

To constitute a person a partner, he must be an 
owner of the business in common with the other part- 
ners, thereby making him a principal. He must share 
the profits and losses as such common owner, and in no 
other capacity. It may be stipulated between partners 



170 COMMERCIAL LAW 

that one of them shall be indemnified against losses; 
but this will not affect his liability to third parties. 

In this connection it is proper to add, that a person 
not a partner, may be held liable as such by third parties 
to whom he has represented himself to be a partner, and 
who, in the exercise of reasonable care and in good 
faith, have relied upon such representation or ^Tiolding 
out" and have acted upon it. 

Business Carried on for Common Benefit. 

The business must be carried on for the purposes of 
gain. Labor and skill being elements, a charitable or 
benevolent organization, is not a partnership, although 
it may conduct occasional affairs for the purpose of in- 
creasing its funds. It is not a business association. 

Classes of Partners. 

Dependent upon the relation one individual bears 
to the partnership and to the public in general, he may 
be either an active partner; a silent partner; an ostensi- 
ble partner ; or a nominal partner. 

An active partner is one who takes an active interest 
in the conduct of the. firm business and he may be either 
a secret or an ostensible partner. A silent partner is one 
who takes no active part in the management of the firm 
affairs and exercises none of the rights of a partner be- 
yond receiving his proportionate share of the profits. 
A secret partner is one whose relation to the firm is con- 
cealed, while an ostensible partner is one who is held 
out to the public as connected with the partnership and 
interested in its affairs. He shares in the firm's profits 
and contributes to its loss. A dormant partner is one 
who takes no part in the business and whose connectioa 
with it is unknown. The term secret, silent, and dor- 
mant partners are much confused, the terms being ap- 



POWERS OF PARTNERS 171 

plied interchangeably. A nominal partner has been de- 
fined as one who, without an interest in the concern, al- 
lows his name to be used and holds himself out to the 
world as having an interest. 

Powers of Partners. 

Articles of partnership generally, have certain clauses 
outlining the rights and powers of the parties thereto. 
But these are by no means comprehensive. Where a 
partner's authority is not specifically set forth in the 
articles, the nature of the business and the general usage 
in that particular business will generally regulate his 
powers. 

Besides being principals, partners are also agents of 
the firm. As such agent, a partner has authority to 
make contracts for his firm, to buy and sell goods, col- 
lect and pay debts, borrow money and issue negotiable 
paper in the firm name. In short, he may do any act, 
in the name of the firm, for carrying on its business in 
the usual way, and it will be binding on all the mem- 
bers. Even for a tort, or wrong, committed by any part- 
ner in the regular course of business, and in the interests 
of the firm, all the partners will be liable. 

It will thus be seen that the relationship between 
partners is peculiarly one of trust and confidence. It 
is therefore, the duty of each partner to act honestly and 
exclusively for the best interests of his firm. He will 
not be permitted to take any advantage or profit to 
himself,' to the exclusion or disadvantage of the other 
partners in any of his transactions in behalf of the firm. 

ISTor can the majority of the partners take an unjust 
advantage of the minority. True, where the articles 
of co-partnership do not provide for the settlement of 
disputes between the partners, it is proper that the ma- 
jority should rule. But this applies to the management 



l'i'2 COMMERCIAL LAW. 

of the firm business only; the majority cannot rule, for 
instance, to admit another partner as against the wishes 
of the minority, or to change the nature of the business, 
etc. 

PiEM Name. 

While it is not absolutely essential for the transaction 
of the partnership business that there should be a firm 
name, as a matter of convenience and commercial 
usage, firm names are usually adopted in the formation 
of the co-partnership. The value of such a firm name 
lies in the fact that it may be used to designate all 
the partners jointly and that transactions signed for and 
done in the firm name, are intended as those of the firm. 
and not of any individual member. There is one excep- 
tion which must be noted to the use of the firm name, 
as such, and that is in the conveyance of realty. We 
have seen that unless otherwise provided by statute, a 
partnership has no legal entity, therefore, it is unable 
to take title to real estate, for such title can only be held 
by a person or a corporate entity. It is usually under 
such circumstances, for one of the partners to take the 
title in his name and hold the same in trust for the 
benefit of the firm. 

What Names May Be Adopted. 

The names of the individual members comprising of 
the partnership may be combined to form a firm name, 
or a purely fancy name may be adopted, or any other 
conventional designation may be utilized and even the 
words, ^^and company'^ may be added to the proper names 
of the individuals, but in all of these styles it is nee- 
essary to ascertain if there is any statutory provisions 
relating to the use of firm name. Some of the states 
have made it compulsory for co-partnerships doing bus- 



THE PROPERTY OF THE FIRM 173 

iness under names which do not disclose the individuals 
connected with the firm as partners, to file certificates 
setting forth the proposed name of the firm and the 
members who comprise it. 

Eight to Use the Firm Name as a Trade Name. 

If a particular name has been adopted by a firm and 
said firm transacts business under that name they have 
a right to preclude others from using that or a name 
so similar in the transaction of like kind of business 
as would tend to deceive customers and the public gen- 
erally. The right to the exclusive use of a firm name 
becomes a question of considerable importance. When 
it is seen that a firm in the manufacture of a certain 
article or in the trade has established a reputation for 
the article or for its dealings, which is immediately 
associated with the use of that name as of the highest 
character, that it would not be fair to let another con- 
cern reap the benefits of such reputation by using a 
name so similar as to be likely to deceive the public in 
the transaction of the business. The firm name may 
be continued after the decease of a partner, and in 
some states a certificate is required to be filed setting 
forth the names of surviving partners. 

The Property of the Firm. 

This may consist not only of money, goods, and lands, 
but it includes also the firm's books, furniture, bills of 
exchange, notes, etc. It includes the property con- 
tributed by the partners to the firm capital, and that 
afterward ac(]uired through partnership transactions. 
All property acquired with partnership funds, even if 
hought in the name of one of the partners, will be gen- 
erally regarded as partnership property. 



174 commercial law. 

Partner's Interest in Firm Property. 

1^0 partner has any separate ownership in any of the 
firm property; but all the partners are interested in all 
of it. Each one's interest is his proportionate share in 
whatever remains after the firm's debts and obligations 
have been met. On its books, the firm appears as a 
debtor to each partner for the amount of capital he con- 
tributed and for moneys lent by him to the firm; and 
as a creditor for all moneys withdrawn by him. 

Creditors of the firm are entitled to have their debts 
paid first out of the partnership property. A creditor 
of the individual partner must wait until firm creditors 
are satisfied, before he may seize any of the firm prop- 
ert}^ on an execution; because his execution is a lien 
only on that partner's individual interest in the prop- 
erty and not on the firm title thereto. 

Partnership Eeal Estate. 

A partnership may own and deal in real estate, but 
not in the firm name. In a conveyance of real estate 
to or from a partnership, the individual names of all 
the members should be written in the deed as being the 
grantees or grantors. 

Termination of Partnership. 

A partnership relation may be terminated either by 
act of the parties, thereto, or, by act or operation of law. 

By Act of the Parties. 

The partnership dissolves or terminates without any 
further act on their part: 

(1) Where the parties have originally agreed upon 
a fixed time within which to conduct, the business, and 
that time has elapsed. If a partner seeks to dissolve the 
relation before the fixed period has elapsed and without 



NOTICE OF DISSOLUTION 175 

the consent of the other partners, he commits a breach 
of contract and may be held liable in damages. 

(2) When no time has been fixed, the partnership 
relation may be terminated at the pleasure of either 
partner; and 

(3) When all the members of the firm mutally con- 
sent thereto, even if the time fixed has not yet elapsed. 

By Operation of Ijaw. 

The law operates to dissolve the partnership rela- 
tion on the death of one of the partners, or in the event 
of his bankruptcy; because, in case of death, the rep- 
resentative, and in case of bankruptcy, the assignee, 
may be distasteful to the surviving partners; and as 
we have seen, no person can become a member of the 
firm without the consent of all the partners. 

Any partner may institute proceedings in court for a 
judicial decree entitling him to a dissolution of the part- 
nership, when he can show to the satisfaction of the 
court: (1) that the business is being conducted at a 
loss; or (2) that his partner has been guilty of some 
serious misconduct, rendering the continuance of the 
business inexpedient, injurious, or impossible; or (3) 
that his partner has become insane, or has been afflicted 
with some physical incapacity, permanently disabling 
him from performing his duties as a partner. 

KoTiCE OF Dissolution. 

It is proper, when the dissolution of the partnership 
has occured through the act of the parties, that actual 
notice to that effect must be given to all parties who 
have dealt with the firm. As to all others, publication 
of the dissolution in some newspaper for a certain length 
of time will be sufficient. 

Such notice of dissolution is usually as follows : 



176 COMMERCIAL LAW. 

Notice is hereby given, that the partnership lately subsisting 
between James Arkwright and John Wells, both of the City of 
New York, N. Y., under the firm name of Arkwright & Wells, 
expired on the 5th day of June, 1905 (or. was dissolved on the 
5th day of June, 1905, by mutual consent). All debts owing to 
the said partnership are to be received by said James Arkwright 
and all demands on the said partnership are to be presented to 
him for payment. 

James Arkwright, 
John Wells. 
Dated N. Y., June 6, 1905. 

Distribution ot Firm Property Upon Dissolution. 

Upon the dissolution of a partnership, each partner's 
agency for the firm ceases, except to sell its property to 
convert it into cash, to collect outstanding debts, and 
to complete unfinished contracts made before dissolu- 
tion. The property of the firm should be converted 
into cash and distributed ratably among the partners, 
after the firm's debts and obligations have been paid. 
If the assets are insufficient to pay the firm debts, the 
partners are individually liable for the difference. As 
to the real estate owned by the firm, there are two dis- 
tinct opinions. In America, only so much of the real 
estate must be converted into cash as will be necessary 
to pay firm debts; the balance going to the partners or 
to their heirs. But in England, all the real estate must 
be converted into cash, the same as the other property 
of the firm. 

The assets of the partnership should be applied as 
follows : 

1. In paying the debts and liabilities of the firm 
to non-partners. 

2. In paying to each partner, ratably, what is due 
from the firm to him for advance as distinguished from 
capital. 



LIMITED PARTNERSHIP 177 

3. In paying to each partner, ratably, what is due 
from the firm to him in respect of capital. 

4. The ultimate residue, if any, will then be divisible, 
as profit, between the partners in equal shares, unless 
the contrary be shown. 

Proportion of Profits and Losses. 

In the absence of provision in the partnership agree- 
ment, the partners must share the profits and losses 
equally, irrespective of the amount of capital contributed 
by either of them. And each partner is individually 
liable, to the extent of his fortune, for debts owing by 
the firm. 

Limited Partnership. 

In such a partnership, some of the partners are known 
as general partners, and. are liable for the firm debts 
as in ordinary partnerships; the others are known as 
special partners, and are only liable to the amount of 
capital they have contributed. The general partners 
manage the business entirely, the special partners taking 
no part therein. 

How Formed. 

In most of the states, statutes have been enacted per- 
mitting limited partnerships to be organized, but these 
statutes are not uniform, and recourse must be had to 
the statutes of each State. They must, however, be 
substantially complied with in all cases, and the busi- 
ness conducted according to their provisions. A non- 
compliance will render the special partner liable to 
third persons, as though he were a general partner. 
He must take no part in the management of the busi- 
ness, making of contracts, bringing of suits, etc.; this 
'.should all be done in the name of the general partners. 



178 commercial law. 

Dissolution and "N'otice. 

The same rules, generally, govern as in the ease of 
ordinary partnerships. 

PEACTICAL QUESTIONS ON PAETNEKSHIP. 

1. What is the interest of a partner in the assets 
of the firm? 

2. How may persons be liable on their contracts 
as partners who have never intended to occupy that re- 
lation to each other: give the principle of law which 
occasions the reasons for the rule? 

3. Wliat is the eifect as to third persons on the lia- 
bility, as partner, of a person who makes an agree- 
ment to share in the profits as such, if he stipulates 
that he shall not be liable for its debts? 

4. What is the legal relation which each partner 
bears to the others, and how far will the act of one bind 
the others as to third persons? 

5. If a firm of butchers has three partners, A, B, and 
C, and C leaves poisoned meat where dogs could reason- 
ably be expected to get at it, and D's dog is killed by 
eating it, what rights of action had D, if any, and 
against whom? 

6. If one member of a firm give the firm note for 
$1,000, uses the money himself, and the firm gets no 
benefit therefrom, is the firm liable on the note? 

7. Several persons being partners in the building of 
a mill, instructed one of their number to purchase 
materials for that purpose, and he in his own name 
bought materials of the plaintiff, who was ignorant of 
the co-partnership. The plaintiff now sues all partners 
of the firm for the price of the materials. Is he en- 
titled to maintain the action? Give your reasons. 



PRACTICAL QUESTIONS ON PARTNERSHIP 179 

8. A, B and C own a line of stage coaches from 
Utica to Eochester. The road was divided into three 
sections, each taking his own section and furnishing his 
own carriage and horses, hiring his own drivers and 
paying the expenses of the route out of his own pocket; 
but the money received from the fares of passengers, 
taking therefrom only toll from the turnpike gates, was 
divided among the three in proportion to the number 
of miles run by each. B in the course of one of his 
trips negligently run his coach against the carriage 
of D, who was rightfully in the highway without fault, 
and thereby D was thrown from his carriage and was 
greatly injured. D brought an action based upon neg- 
ligence to recover his damage, not only against B, but 
against A and C, on the ground that all three were 
partners. The complaint set up all the facts. A and C 
appeared separately, and each demurred to the com- 
plaint. Judgment for whom, and why, and on what 
ground ? 

9. A loaned $1,000 to Brown, of the firm of Brown 
& Jones, upon Brown's statement to A that they wished 
to increase their capital stock by one thousand dollars 
each, and Brown thereupon gave to A the firm note for 
the amount loaned. A sues the firm. Does his right 
to recover against both partners depend upon whether 
a part or the whole of the money was applied to the 
partnership ? 

10. A is not a partner of B, but holds himself out 
as such, in order that B may obtain credit. C sells B 
but does not know that A has held himself out to the 
world as being a partner of B, but finding that B is 
unable to pay and that A has held himself out as part- 
ner to others, brings an action against A and B. State 
the rule. 



180 COMMERCIAL LAW. 

11. A leases B his land on which to grow grain. B 
sublets to C on condition that the latter shall give him 
half the crop. B actually occupies the land durin;^ 
the term. What are the relations of B and C, and why ? 
Are they co-partners? 

12. A, of the firm of A, B, C Co., in the firm name 
induces a contract by fraud against the express orders 
of his partners. The creditors sues the firm. What 
are the rights of the parties? 

13. A and B are co-partners and employed C and 
agreed to give C 10 per cent, of the profits as com- 
mission. Thereafter X sells a bill of goods to the part- 
nership, and in default of payment seeks to hold A, 
B and C. Is C liable as a partner? 

14. A and B are in partnership. A being an infant 
at this time, C sells $5,000 worth of goods to the part- 
nership. Thereafter A arrives at his majority, and B 
having been instructed by A not to purchase any more 
goods of C, buys another $5,000 worth of goods? A 
consults you. What are his rights? 

15. May a firm pass title to (a) personal property 
of the partnership by bill of sale in the business name 
of the firm, (b) real property of the firm by deed in 
the firm name? What rights has a partner as to an 
accounting from his associates? What are the main 
characteristics of a "limited partnership"? 

16. X and Z are partners. If Y recover judgment 
against X for a personal debt, may a firm chattel be 
sold to satisfy this judgment? If so, what title would 
the purchaser at such sale acquire? Does he become 
a partner with Z, and has he any rights as to an ac- 
counting from Z? 

17. On the dissolution of a partnership, what is the 
mutual relation of the partners in respect to the part- 



PRACTICAL QUESTIONS ON PARTNERSHIP 181 

nership property and effects? To what extent does each 
partner continue to be the agent of all? May one 
partner maintain an action at law against another for 
what may be properly due him on partnership account? 
Explain. 

18. State briefly what makers should be specified 
by articles of co-partnership. In the absence of any 
agreement, how are losses and gains to be shared? How 
are firm assets to be applied when there are both in- 
dividual creditors and creditors of the firm? 

19. Should the title to personal and to real prop- 
erty purchased by a partnership be taken in the firm 
name or in the names of the individual partners? In 
a good title to firm realty be passed without the wives 
of the partners joining in the deed? In case of the death 
of a partner to whom does the legal title to the firm^ 



. CHAPTER XIV. 

JOINT STOCK COMPAmES. 

What Are Stock Companies? 

Midway between partnership and corporations, we 
have what is known as joint stock companies. These are 
associations of individuals for the purpose of profit, 
having a common capital, which is divided into shares 
of which each member possesses one or more, and which 
are transferrable by the owner. At common law these 
joint stock companies were considered merely as partner- 
ships. 

Joint Stock Companies Distinguished From a 
Partnership; From a Corporation. 

The death or withdrawal of a member of a partner- 
ship will result in a dissolution of the firm; but in a 
joint stock company, however, the death, withdrawal, 
or transfer of a member's interest does not bring about 
a dissolution of the company. The shareholder's death, 
bankruptcy, or withdrawal, simply severs his connec- 
tion with the company and in no way affects the re- 
lation between the remaining shareholders. 

A joint stock company as distinguished from a cor- 
poration, has this difference: the corporation always 



COMMERCIAL LAW 183 

owes its existence to the sovereign power of the State, 
while the joint stock company is brought into existence 
by virtue of the contract of its members. This seems 
to be about the only important difference between them, 
for most of these companies under suitable legislation 
have many of the other characteristics of a corporation: 
such as, for instance, the right to the use of an artificial 
name under which they way enter into contracts, the 
right to sue and be sued under such artificial name; 
the right to have and use a common seal ; the right to 
transfer its shares of stock; and the right to perpetual 
existence. In some states even, legislation has besD 
passed limiting the personal liability of the shareholders 
comprising the joint stock company. As the charter 
of incorporation is the basis of the right of the corpora- 
tion to act, so the articles of association of a joint 
stock company define the rights of the shareholders as 
between themselves. Many of the states have passed 
laws regulating the organization, government, and man- 
agement, of joint stock companies, fixing the number 
of members, giving them authority to sue and be sued, 
and establishing the extent of the liability of the mem- 
bers. The laws also require such joint stock companies 
to record the articles of association, giving the names 
of the members that comprise the same, the amount of 
capital invested in the joint stock company, the name 
of the company, the nature and location of its business. 
Rights and Liabilities of the Members. 

As amongst themselves, apart from special agreement, 
the general laws of partnership prevail. Thus, as in a 
partnership, one member of a joint stock company can- 
not bring an action for a debt due to him from the com- 
pany, nor can a member claim compensation for spe- 
cial services rendered by him to the company, in tho 



184 COMMERCIAL LAW. 

absence of an express agreement that he should receive 
pay for the same. 

Under statutes passed in New York and many of the 
other states, a joint stock company may, in the name 
of its president as such, purchase, hold, and convey 
real estate when the same is necessary for the conven- 
ience of its business. Statutes also permit the bringing 
of suit by or against a designated person or representa- 
tive of the company, thus doing away with the necessity 
of joining all the members as parties to the suit, which 
was the necessary procedure under the common law. 
Dissolution of Joint Stock Companies. 

The dissolution of a joint stock company may be 
brought about by one of several means, as : 

First. By mutual consent of all the members to 
dissolve. 

Second. By a decree of dissolution made by a court 
of equity after sufficient grounds has been shown there- 
fore. 

Third. Where the articles of association prescribe 
the time of its duration and that time has expired. 

Fourth. Where one member has acquired by pur- 
chase or other means all of the shares of the company. 

The subject of joint stock companies is not one of 
much importance at the present time, because those 
desiring to so associate themselves are given more con- 
venience and inducements by the corporation laws that 
have been adopted by all the states. It was only dur- 
ing the time that no general corporation laws were in 
existence that this means of association was found nec- 
essary. In former years special legislation for a char- 
ter to be granted to a company involved great expense 
and much time, and it was sought to obtain the same 
results by the joint stock company association, but the 



PRACTICAL QUESTIONS ON JOINT STOCK COMPANIES 185 

present favorable corporation laws make this hardship 
no longer necessary. 

peacticai. questioxs on joiwt stock 
compa:n'ies 

1. What is a joint stock company? 

2. How is a joint stock company distinguished from 
a partnership? From a corporation? 

3. The articles of agreement of a joint stock company 
provided that the capital stock should be divided into 
fifty shares; that the shares should be transferable; 
that trustees should be appointed to manage the af- 
fairs, and that all the property should be vested in 
such trustees. In accordance with these articles trus- 
tees were appointed who bought real and personal prop- 
erty and conducted the business of the joint stock com- 
pany. Subsequently A acquired title to the entire fifty 
shares, and then sold to B one-half of all the property 
of the joint stock company. Was that a valid sale, 
and did A have a right to sell the property? Give 
your reasons. 

4. A joint stock company had issued 250 shares, 
150 of which had come into the possession of A, and the 
remainder into the possession of B, C and D. There- 
after A died. Is the company dissolved by A^s death? 

5. A is shareholder in a joint stock company engaged 
in the printing business. He furnishes them with three 
printing presses on thirty days' credit. Thereafter the 
company having failed to pay the sum due on the ma- 
chines, A starts an action against it. There is nothing 
in the constitution or articles of association of the com- 
pany which regulate the remedies as between the share- 
holders. Can A succeed in his action? 



CHAPTER XV. 

COEPORATIONS. 

What is a Corporation. 

A corporation is an association of natural (individ- 
ual) persons, united in one body under a special de- 
nomination and vested by the policy of the law with the 
capacity of acting in several respects as an individual. 

Public and Private Corporations. 

Based upon their powers and purposes of creation, 
corporations are either public or private. A public 
•corporation is one founded by the government for pub- 
lic purposes, such as towns, cities, villages and any 
other territorial division of the state established by the 
law. A corporation designed for the promotion and reg- 
ulation of private interests only is a private corporation. 

Mature and Purpose. 

Generally speaking the only absolutely essential ele- 
ments of a corporation is the capacity to exist and act 
within the powers granted, as a legal entity apart from 
the individuals who constitute its membership. 

So for the purpose of illustration, suppose John 
Smith owns all the stock of the "X Corporation;" that 



CREATION OF CORPORATIONS 187 

this corporation owned a plot of valuable land. Smith 
could not by his own conveyance of that piece of prop- 
erty to another person affect the legal title of the cor- 
poration to said property, for Smith's conveyance is 
not a corporate act. 

It is because of this legal entity idea that the pur- 
poses of incorporating become manifest. Business cor- 
porations are useful and protecting factors in promoting 
business enterprise, since the liability of the members is 
limited to the sum of investment in the corporation. 
Power and Eights op Corporations. 

The corporation can enter into contracts with its own 
members, can sue them for a breach of the same, and 
in turn the corporation can be sued by the members, 
thus drawing sharply the line of distinction between the 
collection of individuals comprising the corporation and 
the legal entity, which is separate and distinct. How- 
ever, the Courts of Equity, when justice requires it, will 
go behind this fictitious entity and hold the individuals 
responsible. Corporations can sue and be sued in its 
corporate name. 
Creation of Corporations. 

The power of creating a corporation belongs to the 
state in the exercise of its sovereign rights. A corpora- 
tion is formed under general laws enacted by the legis- 
lature, the idea being to discourage legislatures from 
creating corporations by special acts or from granting 
special privileges. Where the general laws are ineffec- 
tive for the purpose had in view, the legislature may in 
the exercise of its discretion pass a special act creating 
the corporation. 

In New York State persons desiring to do so may 
associate themselves as a corporate body by complying 
with the corporation laws. 



188 COMMERCIAL LAW. 

The procedure for the formation of any stock cor- 
poration for any lawful business purpose, other than 
banking, insurance, railroad and transportation, is as 
follows : 
First Step. 

Prepare a certificate of incorporation which must 
contain : 

1st. The name of the proposed corporation. This 
name must be different from the name of any other 
New York corporation already in existence. The usual 
way of ascertaining whether there is any other corpor- 
ation with a name similar to that proposed for the new 
company, is by sending a letter of inquiry to the Sec- 
retary of State. 

2nd. The purposes for which it is to be formed. 

3rd. The amount of capital stock. This may be di- 
vided into common and preferred stock, but when so 
divided the nature of the preference must be stated. 

4th. The number of shares of which the capital stock 
shall consist. Each share must not be less than $5.00 
nor more than $100. par value. 

5th. The amount of capital with which the corpora- 
tion shall begin business. This must not be less than 
$500. 

6th. The city, village, or town in which its prin- 
cipal business office is to be located. 

7th. Its duration. This may be any number of 
years or perpetually. 

8th. The number of its directors. The number must 
not be less than three but may be as many more as is 
desired. 

9th. The name and post office address of the directors 
for the first year. At least one of the directors must 
reside in the state. 



CERTIFICATE OF INCORPORATION 189 

10th. The names and post office addresses of the 
subscribers of the certificate of incorporation and a 
statement of the number of shares of stock which each 
agrees to take in the corporation. 

All the subscribers of the certificate, called incor- 
porators, must be natural persons of full age, two-thirds 
of them must be citizens of the United States and at 
least one of them a resident of the State. They must 
acknowledge the making, signing, and execution of 
this certificate before an officer authorized to take ac- 
knowledgement of deeds. 

The certificate may contain any other provision for 
the regulation of the business and conduct of the affairs 
of the corporation and any limitation upon its powers 
and upon the powers of its directors and stock-holders 
which does not exempt them from any obligation or 
from the performance of any duty imposed by law. 

The following certificate is drawn up in conformity 
"with the foregoing law: 

CERTIFICATE OF INCORPOEATION 

OF THE 

METROPOLITAjST GAS AND ELECTRIC FIX- 
TURE COMPANY. 

We, the undersigned, all being persons of full age and at 
least two-thirds of whom are citizens of the United States and 
at least one of whom is a resident of the State of New York, 
desiring to form a corporation pursuant to the provisions of the 
Business Corporation Law of the State of New York, do hereby 
make, acknowledge, and file this certificate for that purpose as 
follows: 

First: The name of the proposed corporation is the 
"METROPOLITAN GAS AND ELECTRIC FIXTURE 
COMPANY. 

Second: The objects for which it is formed and the nature of 
its business are as follows: 



190 COMMERCIAL LAW. 

The manufacture, sale, and disposition of gas and electric 
fixtures, goods and wares of all kinds and nature whatever, in- 
cluding all the materials necessarily used in such manufacture, 
and generally to do any other matter and thing necessary, in- 
cidental to or usual for the accomplishment of any or all the 
purposes aforesaid. 

In aid of, or in connection with, the foregoing, in the use, man- 
agement, improvement, or disposition of its property, and in 
addition to all other powers conferred by law, the corporation 
shall have also the following powers: 

To construct, purchase, lease or otherwise acquire; to hold, 
use, improve, maintain, and to operate, and to let, sell and 
otherwise dispose of materials, supplies, goods, wares and mer- 
chandise. 

To apply for, obtain, register, acquire, give licenses under, and 
dispose of rights in respect to manufacture, use, business or 
trade, including inventions, processes, patents, trademarks and 
trade names. 

The corporation may do any of the things hereinbefore enum- 
erated for itself, or for the account of others; may make and 
perform contracts for doing any thereof, and may carry on any 
business or operation deemed advantageous, incidental or 
necessary to any thereof. 

To buy, lease or otherwise acquire the whole or any part of 
the business, good will, money and assets of any person, firm, 
association or corporation (either foreign or domestic) engaged 
in a business of the same general character as that for which this 
corporation is organized, and other personal property of every 
kind and wherever situated. 

Third : The amount of the capital stock is to be Fifty thousand 
($50,000) dollars, all of which is to be common stock. 

Fourth: The number of shares of which the capital stock shall 
consist is five hundred (500) shares, of the par value of One 
Hundred ($100) dollars each. 

The amount of capital with which said corporation shall begin 
business is Twenty-five Thousand dollars ($25,000). 

Fifth: Its principal business office shall be located in the 
Borough of Manhattan, the City of New York, County of New 
York and State of New York. 

Sixth: Its duration is to be fifty (50) j^ears. 

Seventh: The number of its directors is to be three (3). 



CERTIFICATE OF INCORPORATION 191 

Eighth: The names and post-office addresses of the directors 
for the first year are as follows: 

Names. Post Office Addresses.. 

James Parker 150 Nassau St., New York City, N. Y . 

Walter Budd Hotel Savoy, New York City, N. Y. 

John Forsythe 370 Broadway, New York City, N. Y. 

Ninth: The names and post office-addresses of the subscribers 
and a statement of the number of shares of stock which each 
agrees to take in said corporation are as follows: 

Statement of 
Number of 
Post Office Shares 

Names. Address. Subscribed. 

Alfred Hopkins . . 10 Chambers St., N. Y. City 1 

James Parker 150 Nassau St. N. Y. City._. 1 

Walter Budd Hotel Savoy,. . N. Y. City 1 

John Forsythe 370 Broadway, N. Y. City 1 

Tenth: The corporation is to have the power to acquire, pur- 
chase, hold, lease, mortgage, sell, improve, assign, convey, ex- 
change and rent real property; acquire, purchase, hold, sell and 
hire personal property; and said corporation shall also have 
the power to purchase, acquire, hold and dispose of stock, bonds 
and other evidences of indebtedness of any corporation, domestic 
or foreign, and issue in exchange therefor its stock, bonds and 
other obligations. 

IN WITNESS WHEREOF we have made, signed and ac- 
knowledged and filed this certificate in duplicate this 1st day of 
May, 1906. . 

Alfred Hopkins, 
James Parker, 
Walter Budd, 
John Forsythe. 

State of New York.) 

' >■ ss. 
County of New York,) 

On this 1st day of May, 1906, before me personally came 
Alfred Hopkins, James Parker, Walter Budd and John Forsythe 
to me known and known to me to be the individuals described 
in and who executed the foregoing instrument, and they severally 
duly acknowledged to me that they executed the same. 

John Tamar, 
Notary Public, 

New York County. 



192 COMMERCIAL LAW. 

The certificate should be prepared in triplicate, one 
original, one duplicate original, and one copy, for the 
reason explained in the second step. 

Second Step. 

1st. After the above papers are prepared, the original 
certificate is sent to the Secretary of State to be filed 
and recorded. The fees to be paid to the Secretary of 
State are $10 for filing and 15 cents per folio (each 
100 words) for recording. 

2nd. Pay to the State Treasurer the amount of the 
organization tax of 1-20 of 1% of the amount of the 
capital stock as fixed by the certificate of the incorpor- 
ation. No tax can be less than $1. The State Treas- 
urer will return duplicate receipt to sender. 

3rd. Send the copy of certificate of incorporation to 
Secretary of State for his certification under the seal 
of the State. Fees for this are 15 cents per folio and 
$1 under seal. 

4th. When the copy duly certified and the Treasur- 
er's receipt are received take the duplicate original cer- 
tificate with the tax receipt to the County Clerk's office 
of the county in which the principal place of business 
is fixed by the certificate of incorporation, for filing and 
recording. The County Clerk's fee for filing is 6 cents 
and for recording 10 cents per folio. 

Then have the County Clerk certify on the copy that 
the duplicate certificate has been duly filed by him. 

The copy which is retained is the charter of the cor- 
poration. 

Thied Step. 

After the foregoing has been completed the organiza- 
tion of the company may be perfected by the adoption 
of by-laws, election of officers as provided in the by-laws 



CONTRACTS OF PROMOTERS 193 

and the issuance of shares of stock in the corporation. 
Of course each state has its own method of procedure 
in incorporating, and reference must always be made to 
the Corporation laws of the particular state in which it 
is desired to incorporate, the above procedure being se- 
lected to show the method of incorporating in New 
York State, the essentials differing in no great respect 
in other states. 

Promoters. 

It is well now to study the relationship between the 
corporation and the person or persons who were instru- 
mental in bringing about its organization, commonly 
<3alled promoters. 

Who is a Promoter. 

A promoter is one who brings about the incorporation 
and organization of a corporation. He brings together 
the persons who become interested in the enterprise, 
aids in procuring subscriptions and sets in motion the 
machinery which looks to the formation of a corpora- 
tion. 

Promoters are usually divided into two classes, those 
actually interested in promoting the scheme of organiza- 
tion and those who merely subscribe for or agree to 
take shares in the stock of the corporation to be formed. 

Contracts of Promoters. 

The acts, and contracts entered into between pro- 
moters and third parties through the promotion of the 
corporation, and the rights and liabilities arising there- 
under, will be determined in accordance with the gen- 
eral laws of contracts, agency, and partnership. While 
these are all entered into ultimately for the prospective 
^corporation, still it is not bound by the contracts of 



194 COMMERCIAL LAW. 

the promoters unless it accepts the contracts after its 
formation. 

Contracts made by promoters may be adopted by the 
corporation and in such adoption it will become liable 
as though it had made a new contract, the date of 
such contract being the date of its adoj)tion. The cor- 
poration may adopt the contract expressly or impliedly. 
If it takes the benefits arising out of a contract, with 
knowledge, it impliedly adopts the contract. 

Promoters Eelation to the Corporation. 

On the other hand the promoters stand in a fiduciary 
position to the prospective corporation. They cannot 
obtain secret profits in transactions entered into, in be- 
half of the corporation. This does not prevent a pro* 
moter, for instance, from acquiring property in his own 
name, not as a promoter, and selling it to the corpora- 
tion at an advanced rate. When he is not acting as a 
promoter, but merely as a vendor he need not disclose 
his profits. 

Acting as a promoter, he cannot as such purchase 
property and then sell it to the corporation at an ad- 
vance, nor can he negotiate a sale and receive a bond 
from the vendor. The essential question to be deter- 
mined is whether the promoter was or was not acting- 
for the corporation at the time of the transaction. 

Neither is the corporation, when formed, liable to the 
promoter for his expenses and the work done in its be- 
half unless there is a statute providing for such pay- 
ment, or the corporation accepting the benefits oi his 
work expressly promises to pay for them. 

Capital and Capital Stock. 

The capital stock whether actually paid up or sub- 
ject to call, represents the source from which the pri- 



CLASSES OF STOCK 195 

mary fund is derived and which is to be applied in 
furthering the objects of incorporation. It is the fund 
to which the subscribers are bound to contribute and 
which creditors may rely on for the payment of their 
claims. It need not be altogether cash, but may con- 
sist partly of buildings, plants, machinery, property, etc. 
Classes of Stock. 

Stock is divided into several classes, namely : common, 
preferred, treasury, and guaranteed. 

Common Stock is the ordinary stock issued by a cor- 
poration. It does not carry with it any special priv- 
ileges nor are there any restrictions imposed upon it. 

Preferred Stock carries with it a preference in the 
matter of payment of certain dividends, out of the 
profits, before the dividends are declared on the common 
stock. This preference is usually stated on the face of 
the certificate. 

If there are no profits, the holders of stock have no 
claim against the corporation. Should the preferred 
stock be cumulative, the dividend arrearages for the 
past years must be paid in full before any dividend 
can be paid on common stock. 

Where it is desired to raise money for the corpora- 
tion and the methods adopted are either the sale of 
bonds or the issuance of preferred stock, it is advisable 
to use the latter means, for the failure to pay the div- 
idend does not give rise to a cause of action against the 
corporation, since it is not a debt, while the bond 
issue is. 

Treasury stock is stock of the company donated or 
purchased by it. It is stock issued but which has sub- 
sequently come back to the corporation. While this 
stock is in possession of the corporation it can neither 
be voted nor share in the dividends. 



196 COMMERCIAL LAW. 

Guaranteed stock is the stock of one corporation, the 
payment of dividends on which has been guaranteed 
by another corporation. It is an arrangement common 
among railroad corporations. 
Subscriptions to Stock. 

Most corporations are now formed to take over and 
carry on a business already in existence, for instance, to 
operate a mine, to manufacture a patent or to take over 
property, and the entire stock being paid up by the 
assignment to the corporation of the business or 
propert}^ In such event there is no need for subscrip- 
tion. Where the capital, however, is supplied by sub- 
scriptions to be paid in toto or on installments at the 
times and in the amounts agreed upon in the sub- 
scription contract, should the subscriber default in the 
first payment the usual method is to cancel without 
formality his subscription and the matter ends there. 
If payment has been made in part and then the sub- 
scriber defaults, the proceedings to forfeit his stock 
for default must be closely followed as set forth in the 
statutes. 

A subscription usually being signed before the or- 
ganization of the corporation is a mere promise without 
consideration and can be revoked at any time before 
acceptance by the corporation. To prevent this, a com- 
mittee on organization or agents may be named in the 
subscription as the other party to the contract. 

A person who enters into a contract may be com- 
pelled to become a subscriber. Any material alteration 
or change of the conditions set forth in the subscription 
list will act as a release of the subscriber. 
Watered Stock. 

The term watered stock is applied to any stock issued 
for which the corporation has not received an equiva- 



CERTIFICATE OF STOCK 



197 



lent in assets. It is issued without any payment, or 
without full payment therefor in cash or property. 
Such stock is considered more or less watered de- 
pending upon the real value back of it. 

Certificate of Stock. 

These certificates are issued to stockholders who have 
paid in full and shows the amount of stock of the cor- 
poration standing on its books in his name. They are 
usually numbered and signed by the president and sec- 
retary of the company. The following is the usual form 
of a certificate of stock: 



Gerttficate of Sbares 
Metropolitan Qas and Electric Fixture Company 

Uncorporateft IHnicK tbe Xawg of State of "Wew 13orf; 

1 Sbare 

This is to Certify that John Budd is the 

owner of one share of the Common Stock 

of the 

/Hbctropolitan (5as anD Blectric 
3ftjture Company 

transferable only on the hooks of the Com-' 
pany by the holder hereof in person or 
duly authorized Attorney upon surrender of 
this Certificate properly endorsed. 

Witness the seal of the Company 
and the signatures of its duly author- 
ized Officers affixed this 5th day of 
May, 1906. 



Wumber 3 



Capital Stoc?^ 

$50,000 
Sbares 

$001 

Bacb 



Seal 



John Forsythe 

Secretary 



James Parker 

President 



198 COMMERCIAL LAW. 

These certificates should never be issued until the 
stock has been paid for in full, then they may be prop- 
erly marked "fully paid and non-assessable." 

Certificates are only evidence of the ownership of 
stock, not stock itself. A stockholder can enjoy all the 
rights appertaining to him as such, though he has not 
possession of the certificate. 

Transfer of the Stock. 

On the back of each certificate of stock there is gen- 
erally printed an assignment and power of attorney 
which the seller signs in blank and turns the certifi- 
cate over to the purchaser; thus transferring title to 
him. If the transferee (purchaser) desires to make 
himself a stockholder of record, he writes his own name 
in the blank assignment and then has the secretary of 
the corporation make the necessary transfer on the books 
of the company. The following is the form of such 
transfers : 

For Value Received I hereby sell, assign and transfer unto 
James Brown, One (1) Share of the Capital Stock represented by 
the within Certificate and do hereby irrevocably constitute and 
appoint James Brown Attorney to transfer the said stock on 
the Books of the within named Company with full power of 
substitution in the premises. 

Dated May 6, 1906. 

John Budd. 

In Presence of 
Alexander Hobbs. 

The surrendered certificate is thereupon cancelled and 
a new one issued in the name of the transferee. 

Lost Certificate of Stock. 

If a certificate be lost or stolen the secretary of the 
of the corporation should be notified at once and steps 
taken to prevent its negotiation. A new certificate may 



MANAGEMENT OF CORPORATION 199 

be issued in its stead by the express authority of the 
Board of Directors, who will require that a bond of in- 
demnity be furnished, as it is possible that in the course 
of events the certificate may turn up in the hands of an 
innocent holder who has purchased the same for value, 
and who would have a just claim against the cor- 
poration if it refused to honor his rights under the 
certificate. 

The loser of the certificate may invoke the aid of the 
law to compel the Board of Directors to issue a new 
certificate and should the value of the stock be consider- 
able it is advisable for the Board of Directors not to 
issue a new certificate until such an order has been ob- 
tained, in which case the directors are relieved from all 
responsibility in the matter. 
Management of the Corporation. 

The individual stockholder no matter how large his 
holdings, has, outside of the stockholders' meetings, no 
power to interfere in the lawful management of the 
company or its business. If any illegal or wrongful 
action is taken or about to be taken, he can appeal to 
the courts; or if he can secure a majority of his fellow 
stockholders to act with him, a stockholders' meeting 
may be called, and the by-laws amended, or such other 
action taken as may be necessary to prevent any threat- 
ened injurious action. In some cases wrongs already 
done may be remedied in this way. 

The collective powers of the stockholders apply to 
but few matters and these may be summarized as 
follows : 

1. Adoption or amendment of by-laws. 

2. Election of Directors. 

3. Amendment of the Charter. 

4. Dissolution of the Company. 



200 COMMERCIAL LAW. 

5. Sale of the entire assets. 

6. The exercise of any specialty conferred charter 
powers. 

Meetings. 

At least one meeting of the stockholders is held each 
year, designated the annual meeting, for the purpose 
of electing the directors and such other business as may 
properly come before the meeting. The by-laws usually 
fix the number of stockholders that shall constitute a 
quorum. A majority of the outstanding stock gener- 
ally constitutes a quorum. If a quorum is not present, 
those stockholders who do attend for the purpose of the 
meeting may adjourn for a day or two, or as long as 
they see fit, until a quorum is secured and a meeting 
held. 

Those stockholders who are unable to attend and still 
desire to have a say in the meeting, may do so through 
proxies duly signed and executed. This is the general 
form of a proxy : 

^KNOW ALL MEN BY THESE PRESENTS, that I, 
John Smith, do hereby constitute and appoint Frederick Jones 
Attorney and Agent for me and in my name, place and stead, 
to vote as my proxy at any election of the Mining Improvement 
Company according to the number of votes I should be entitled 
to vote if then personally present. 

In Witness wnereof. I have hereunto set my hand and seal 
this 10th day of June, one thousand nine hundred and five. ^;, . 

John Smith. 

Sealed and delivered in the 'presence of 
Harry L. Jackson. 

State of New York,) 
County of New York,) 

On the 10th day of June in the year one thousand nine hundred 
and five before me personally came John Smith to me known 
to be the individual described in, and who executed the foregoing 
instrument, and who acknowledged that he executed the same^ 

L. B. Miller, 
Notary Public. 



OFFICERS AND AGENTS OF THE CORPORATION 201 

In this way the majority of the persons present at 
the meeting, may not be stockholders, yet by virtue of 
their proxy they can carry out the wishes of their prin- 
cipals and control the meeting. Each share of stock is 
entitled to one vote. 

Cumulative Voting. 

This method of voting only applies to voting for di- 
rectors and the right to so vote must be given in the 
charter. It enables each stockholder to cast as many 
votes as shall equal the number of his shares of stock 
multiplied by the number of directors to be elected and 
to cast all of such votes for a single director or to dis- 
tribute them among the number to be voted for or any 
two or more of them. By this means the minority 
stockholders may secure representation on the Board 
of Directors. 

Officers and Agents of the Corporation. — The 
Board of Directors. 

The number of directors is usually fixed by statute 
though in some states there is no maximum limit. The 
Board of Directors exercise the active and controlling 
power in all corporate business. They have the original 
and supreme power to make corporate contracts, etc., 
and the stockholders cannot interfere unless the acts 
of the directors are so glaringly unjust and injurious 
to the stockholders as to warrant application, on their 
part, to the courts for relief. 

The Directors are controlled and governed by the by- 
laws of the corporation. They have no power to amend, 
alter or repeal the by-laws but may pass such additional 
by-laws conforming with those already in existence as 
may tend to improve or facilitate the business of the 
corporation. The Board of Directors is a deliberate 



202 " COMMERCIAL LAW. 

body only, it does not carry out its own enactments or 
measures directly, but authorizes the officers or the 
agents of the corporation to do what has been agreed 
upon by the Board. 
Liabilities of the Directors. 

By statute the Directors are made personally liable 
for certain acts, for instance : 

1. Declaring dividends except from surplus profits. 

2. Withdrawing or paying out any part of the cap- 
ital, except as authorized by law. 

3. Making any certificate, report, or notice that is 
false in any material representation. 

By the common law they are responsible for any cor- 
porate fraud, trespass or other unlawful act, committed 
with their connivance, assent, or knowledge. 
The Officers of the Corporation. 

The usual officers of a corporation are the President, 
Vice President, Secretary and Treasurer. They are 
elected by the Board of Directors and hold office for 
the term of one year or until their successors are elected. 

The President acts as chairman of all meetings of 
stockholders and Board of Directors, signs all certifi- 
cates of stock and other papers, contracts, etc., that he 
may be authorized by the Board of Directors. 

The Vice President, in case of absence, inability, or 
refusal to act of the President, possesses all the powers 
and duties of the President. 

The Secretary keeps the minutes of the meetings of 
the stockholders and the Board of Directors. He has 
charge of the Seal of the corporation and must affix 
same to such instruments as require the corporate seal. 
He keeps the stock books and all other usual corporate 
books. He has charge of all the corporate correspon- 
dence. 



PERSONAL PROPERTY 203 

The Treasurer has charge of and is responsible for all 
moneys and securities belonging to the corporation. He 
must keep a full and accurate record and account in 
books showing the financial transactions of the com- 
pany. He indorses all negotiable instruments, pays out 
the moneys for the company and performs such other 
duties as the Board of Directors may determine and 
the law prescribes. 

Property and Contracts. 

The power of a corporation is measured by its charter, 
and it can lawfully exercise such powers only as are 
expressly or impliedly conferred by that instrument. 
One of the powers if not expressly conferred by the 
charter, is nevertheless, implied as an incident to cor- 
porate existence, namely, that of holding property both 
personal and real, where the same is reasonably neces- 
sary or convenient to enable it to accomplish the ob- 
jects for which it was created. 

Eeal Property. 

It can hold real property in fee or as a tenant in 
common and the fact that the life of the corporation is 
limited to a certain number of years, does not prevent 
it from taking title in fee, for while it cannot hold real 
property beyond the period of its existence it may take 
the fee and convey it. 

The amount or value of its property is not limited 
by its capital stock. 

Personal Property. 

A corporation may hold personal property, and it has 
the implied power to purchase any personal property 
that may be necessary or convenient in furtherance of 
its business and the objects for which it was created. 



204 COMMEKCIAL LAW. 

It may take personal property, even if not needed in its 
business where the same is taken as collateral security 
for a debt, or in payment of a debt due to it. 

Contracts. 

A corporation, unless restricted by its charter has the 
same power to enter into contracts as an individual has, 
providing they be usual and necessary in the course of 
the business for which the corporation was created. 

Contracts. Accommodation Papers. 

Every private corporation, if acting within its legiti- 
mate purposes has the implied power, unless expressly 
restricted, to jnake promissory notes, to draw and accept 
bills of exchange, to indorse bills and notes, in payment 
or as security, as long as the same is done in the usual 
course of business and for corporate affairs. But a cor- 
poration has not the power to indorse accommodation 
papers. 

A corporation in order to attain its legitimate objects 
may deal precisely as an individual who may seek to 
accomplish the same ends, and this includes the power 
to borrow money for use in its legitimate business, and 
the power to give a time engagement to pay the debt, 
in any form not prohibited by statute. 

When a corporation can lawfully purchase property 
or procure money on loan in the course of its business, 
the seller or the lender may exact, and the purchaser 
or borrower must have the power to give any known as- 
surance which does not fall within the prohibition ex- 
pressed or implied of some statute. The particular 
restriction must be found in the charter of the corpora- 
tion or in some statute binding upon it, but if not found 
in that examination it may safely be affirmed that the 
restriction has no existence. 



Liability of Shareholders 205 

** Ultra Vires " Acts of the Corporation. 

The term " ultra vires " meaning " beyond the 
powers " is applied to the acts of a corporation when 
such acts exceed the power vested in it by its charter. 

Thus a corporation is organized for the manufacture 
of glass bottles and kindred goods. Later the Direct- 
ors of the Corporation acquire the control of a patent 
medicine and see opportunities to branch in the patent 
medicine line, to fill their bottles and sell the medicine. 
Should the corporation attempt this they would exceed 
their corporate powers and may become seriously in- 
volved. 

The charter of the corporation defines the corporate 
powers; when it goes beyond these, its acts, contracts, 
and agreements are illegal and the corporation cannot 
enforce such contracts against others, though sometimes 
when the corporation has accepted the benefits of an 
'^ultra vires" contract, the contract can be enforced as 
against the corporation. 

Directors and officers of the corporation hold them- 
selves out to personal liability for involving the corpora- 
tion in such transactions. The creditors and stockhold- 
ers have the right to object to " ultra vires " acts of the 
■corporation. The best thing, therefore, on the part of 
the management of a corporation is to limit their trans- 
actions to those authorized or necessarily implied powers 
as granted by the charter. 

Liability of Shareholders. 

Where from the nature of the corporation, liability 
for corporate debts is not extended beyond the capital 
named in the charter, the shareholders, provided they 
have honestly paid cash in amount, or property in value 
equal to the par value of their share, are not personally 
liable to the creditors of the corporation. \^Tien this has 



206 COMMERCIAL LAW. 

not been done or when the shareholders have diverted 
the funds of the corporation so as to prevent the dis- 
charge of the corporate indebtedness the creditors have 
a right to demand that the shareholders contribute to 
the corporate funds the amount unpaid on their shares 
of stock when necessary to meet the debts of the cor- 
poration. This is not so as against a person, who buys 
from another in good faith shares of stock as fully paid 
up, where in fact the corporation ijever received the 
par value from the original purchaser. 

The law is that the corporate assets constitute a 
trust fund in favor of the creditors. The amount of 
stock named in the charter constitutes a statement to all 
the world that that is the amount of capital with which 
the corporation is to do business. 

The capital of the corporation is the basis of its 
credit. It is the substitute for the individual liability 
of those who own its stock. People deal with it and give 
credit on the face of it. They have a right to assume 
that it has paid in capital to the amount which it repre- 
sents itself as having, and if they give credit, it is on the 
faith of that representation. Should the corporation be 
insolvent, the law says to the delinquent stockholder 
"make that representation good by paying for your 
stock." In a monetary corporation, such as a bank, 
insurance and trust company, the liability of the stock- 
holders is double the amount of their holdings. 

Dividends. 

The dividend is the gain accruing to each shareholder 
on the money invested by him. It can only be paid out 
of the profits of the corporation, and then only at the 
discretion of the Directors. A shareholder as such is 
not entitled as a matter of right to dividends simply be- 



PRACTICAL QUESTIONS ON CORPORATIONS 207 

cause there are profits, in fact he does not become en- 
titled until a dividend is declared by the Directors. 

After a dividend has been declared each shareholder 
has as against the corporation an unconditional right 
to his portion of it. The dividend becomes a liability 
of the corporation and after demand each shareholder 
has a right to institute suit for the recovery of the divi- 
dend the same as any creditor would sue the corporation 
on a debt. 

Stock Dividends. 

"When the corporation votes to issue further stock 
out of the surplus profits, it in effect declares a stock 
dividend, and the shareholder can compel the issuance 
to him of his proportionate number of shares. Of 
course it can readily be seen that in declaring a stock 
dividend what the corporation really does is not tc 
distribute the profits, but merely to increase the number 
of shares into which the capital is divided. 

Who Ov^ns the Dividends. 

A dividend belongs to the owner of the stock at the 
time it is declared whether it was earned before he 
obtained the shares or after. So a sale of shares after 
a dividend is declared does not carry with it the right 
to the dividend, even though the dividend is not pay- 
able until after the sale. The important point to 
remember in a question between vendor and vendee aa 
to the right to the dividend, is, who was the owner of 
the shares at the time of declaration of dividend. 

PEACTICAL QUESTIONS OjST COEPOEATIONS. 

1. You are a stockholder in a corporation which 
has a surplus applicable to the payment of dividends^ 
but the directors in bad faith and without good 



208 COMMERCIAL LAW. 

reason refuse to declare one. Have you a remedy, and 
how would you enforce it? 

2. A stockholder of a corporation is sued under the 
statute by an employee. He defends on the ground 
that there is no corporation, as it has not been regu- 
larly organized. Is that a good defense? Why? 

3. The directors of a corporation made a valid con- 
tract with A, but when the stockholders had a meeting 
they refused to accept the contract as that of the cor- 
poration, and the directors subsequently sided with 
them. What are the rights of A? 

4. A corporation by its by-laws provides that its 
manager shall not contract any debt for more than 
$5,000 without vote of the board of directors. The 
manager contracts a debt of $10,000 without such vote. 
Corporation refuses to pay. Is it liable? Give reason. 

5. Corporation fails to take certain statutory steps 
necessary to create a corporation. After contracts a 
debt, and on being sued, sets up its lack of corporate 
existence. Can it do so? 

6. W^hat is ultra vires? Give an illustration. 

7. May a stockholder defend an action for sums 
which he owes on his stock subscription by alleging 
that there was never any legal incorporation? 

8. If a corporation has issued stock under an agree- 
ment that only part of its value need be paid, may a 
creditor of the corporation recover from the holder of 
such stock the part unpaid? 

9. C, a promoter of a corporation, secured an option 
on certain real estate of D with a view to organizing 
a corporation and selling the real estate to it, and C 
together with E, who was employed by C, formed a cor- 
poration and secured subscriptions for the stock on 
representations that the land cost $32,000, $2,000 more 



PRACTICAL QUESTIONS ON CORPORATIONS 209 

than it actually did cost, and also that certain notes 
would be included in the sale, xlfter the corporation 
was organized C informed the stockholders that the 
notes were not included in the sale, though they had 
been received by himself. C received for the land from 
the corporation $32,000. C thus realized a profit with- 
out the knowledge of the stockholders of $2,000 in cash, 
and the notes were $3,000. What rights have the stock- 
holders against C? 

10. A, B and C as promoters and on behalf of a con- 
templated corporation, made a contract with D. By 
this contract I) was employed as an advertising solicitor 
for the period of one year from the date on which the 
corporation would be organized. The corporation was 
organized and D entered upon his service as advertising 
solicitor for the X Company, and continued to work 
for six months, after which he was discharged by A. 
The directors of the X Company never took any formal 
action as to the contract made by the promoters with 
D, but knew of the contract at the time the X Com- 
pany was organized, and that D was rendering services, 
and they made no objections. The directors had power 
to make such a contract engaging D as advertising so- 
licitor. D now brings an action against the X Company 
for breach of contract. What are the rights of the 
parties ? 

11. The Pullman Palace Car Co. by its charter had 
" power to manufacture, construct and purchase railway 
cars with all convenient appendages and supplies for 
persons travelling therein, and the same may sell or 
use or permit to be used, and to purchase, acquire and 
hold such real estate as may be deemed necessary for the 
successful prosecution of their business, and may have 
power to sell and convey the same." The corporation 



210 COMMEECIAL LAW. 

purchased real estate and built what is called " the Town 
of Pullman '^ with streets and alleys, sewerage, water 
and light system, erected buildings for dwellings, 
schools, churches and business houses in order to fur- 
nish homes and the conveniences and necessities of life 
to its employees. The Attorney General of Illinois 
brings an action to forfeit the Company's charter. On 
what ground does he bring this action? Can he suc- 
ceed in the action? 

12. A, a railroad corporation, entered into a contract 
with B, also a railroad corporation, whereby it was 
agreed that B should be controlled and managed by A. 
This agreement was ultra vires as to A. Smith became a 
passenger on a train operated by the servants and agents 
of A, in the performance of the above agreement. 
Through the negligence of the servants and agents of 
A, Smith was injured. He now brings an action to 
recover from A for damages sustained. A claims that 
it is not liable^ as the business was ultra vires in the 
operation of which Smith received an injury. Can 
Smith recover? 

13. An agreement w^as made between the promo- 
ters of a corporation and A, a subscriber to its stock; 
that A was to have the stock for the sake of the in- 
fluence of his name, and that he would not be required 
to pay his subscription. Subsequently a certificate 
of stock was issued to him. The subscribers did not 
know when they subscribed of this secret agreement 
made by the promoters with A. Can A be compelled 
to pay for his stock? 

14. A subscribed for 400 shares of the stock of X, 
a corporation. At the time that A subscribed for this 
stock he made a contract with B, another subscriber 
of the stock of X, whereby B agreed to purchase A's 



PRACTICAL QUESTIONS ON CORPORATIONS 211 

stock at the price A paid for it if, within one year, A 
elected to sell his stock. A had refused to subscribe 
for his stock until B made this contract with him. The 
contract induced A to subscribe. The other subscribers 
for stock, some of whom subscribed before and others 
after A, did not know of this contract made between 
A and B. The contract was made fairly and honestly 
and untainted with actual fraud. A elected within one 
year to sell his stock to B, who refused to purchase the 
same. Does A have a cause of action against B for 
breach of contract? 

15. The Board of Directors of N, a corporation, 
passed on January 25th, the following resolution: 

"At a meeting of the Board of Directors held this 
day, resolved that a dividend of ten per cent be declared 
payable on March the 1st." 

Jones, who was the holder of 200 shares of stock, sold 
the same to Smith on February the 1st, Who is enti- 
tled to the dividend? 

16. A purchased of B 10 shares of stock of the Uto- 
pia Mining Co. B signed the usual blank power of 
attorney on the back of the certificate of said shares, 
and delivered the certificate to A, who placed the cer- 
tificate with the power of attorney thus signed in blank 
in his safe. While in this form the certificate was sto- 
len from the safe by a thief, who broke open the safe. 
The thief did not change the certificate in any way 
nor fill in the blank power of attorney, but sold it to 
C, who received the same for full value and without 
notice. What are the rights of A? 

17. The directors of a corporation entered into a 
contract with A and B whereby they undertook to de- 
liver to A and B the absolute control and management 
of the corporation for $15,000. This was to be ac- 



212 COMMERCIAL LAW. 

complished by the resignation from time to time of one 
or more of the directors of the corporation and the 
election of A and B or the persons that they should 
designate as directors. This agreement was subse- 
quently executed, and Jones, one of the directors, re- 
ceived $3,000. M, as receiver of the corporation, has 
brought an action to recover this sum of Jones. Can the 
action be maintained? 



''$1100. 
American 

Brass 
Works. 



Jersey City, N. J., Jan. 20, 1906. 
Three months after date, we promise to pay to the 
order of A. & Co. eleven hundred dollars at the First 
National Bank of Jersey City, value received. 

John Jones, President, 
John Smith, Treasurer." 



The above note was duly discounted by the bank in 
the absence of notice that it was intended that it should 
be the note of the corporation, the American Brass 
Works. Can it be held to be the note of the officers. 
Jones and Smith? 

19. A railroad corporation authorized its agent to 
issue bills of lading when goods had been received for 
carriage. The agent fraudulently issued a bill of lading 
to A when no goods were received. A took the bill of 
lading to a bank which, without notice that no goods 
had been shipped, and on the faith of the bill of lading 
which was transferred to it, discounted a draft drawn 
on the consignee. Payment on this draft was refused. 
\\Tiat are the rights, if any, of the bank against the 
railroad corporation? 

20. A corporation was organized by a special act of 
the Legislature to build a bridge. Its charter contained 
a provision that the bridge should be commenced within 
two years from the granting thereof, or all the rights 
and privileges granted thereby shall be null and void. 



PRACTICAL QUESTIONS ON CORPORATIONS 213 

The bridge was not commenced within two years from 
the passage of the act. Was the corporation dissolved 
thereby ? 

21. In a certain stock corporation only fifty per 
cent of the subscribed capital has been called. A has 
paid all the installments called and has loaned to the 
company an additional sum, for which he has taken 
its promissory note, and has transferred the note to 
B. B demands payment. May the company call further 
installments on A's stock, and offset the amount so 
called against the promissory note held by B? Explain, 
your answer. 



CHAPTER XVI. 
AGEXCY. 

Definition of Agency. 

Agency is the medium whereby one person vested 
with authority to represent another called his principal, 
brings him into contractual relations with a third 
party or parties. It may also be defined as a legal re- 
lation generally arising as the result of an agreement 
between a principal party and one who represents the 
principal party in his transaction with third persons. 

Who Is an Agent. 

Any one who undertakes to transact some business or 
to manage some affair for another person, by his author- 
ity and on his account and who subsequently must 
render an account of such transaction, is an agent. 

Distinction Between Agent and Servant. 

The nature of the act which a person performs fo^ 
another will generally determine the relation to that 
other as an agent or servant, and it is quite possible 
for the same person to act in the capacity of both agent 
and servant; thus, suppose A authorizes B to sell his 
automobile and B effects a sale to C and then A requests 



AFFAIRS OF AGENTS 215 

B to drive the automobile to C's garage, in bringing 
about the sale B has acted as the agent for A because 
his act has resulted in a contractual relation between 
A and C, but in driving the machine to C's garage he 
has simply acted as a servant of A's in the perform- 
ance of that duty. From this illustration we see that 
an agent performs acts which bring his principal into 
contractual relation with third parties; a servant per- 
forms acts for his master, which do not result in con- 
tractual relations. 
Who May Act as Principal. 

Any person who has legal capacity for contracting, 
may act as principal. In the case of an infant, how- 
ever, the courts, especially in the United States, have 
generally held that he ma}^ act through an agent, that 
the latter's acts are only voidable and may be ratified 
by the infant after he has come of age. A corporation 
may act as a principal and appoint agents through 
whom it must necessarily act in the conduct of its 
business. In a partnership, each member of the firm is 
a principal as well as an agent, in the conduct of the 
partnership affairs. 
Who May Act as Agent. 

An agent may be any person whom the principal may 
authorize to act for him. If an agent is a person not 
possessing the capacity to contract, he cannot be bound 
by his agreement to act as agent ; but so long as he does 
act, his principal will be bound by his acts. Practically, 
the same rules govern between principal and agent as 
in contracts ; but an agent may not act for his principal 
and also for a third party without their knowledge. 
Appointment of Agent. 

It is essential in order to constitute an agency that 
there should be an appointment of the agent by the 



216 COMMERCIAL LAW. 

principal and a consent to such appointment by the 
agent. This leads to the conclusion that agency is a 
form of contract and must possess the necessary ele- 
ments of every contract. As we have already seen, 
contracts may be implied as well as expressed. So like- 
wise, agency may be implied, expressed, or in some in- 
stances even presumed by the law. 

Express Appointment by Parole and in Writing, 

Appointment may be made and authority conferred 
by express words spoken with that intent, and except 
in cases to be hereafter noted, authority for doing any 
lawful act to be done, may be created by parole. 

Appointment by writing may be by means of a regular 
and formal agreement, by letter, telegram, or other 
written method of cummunication. 

Where the agent is to execute on behalf of his princi- 
pal an instrument or writing under seal, the authority 
to do so must be conferred by an instrument of equiva- 
lent solemnity, and it must, therefore, be under seaL 

Agency by Estoppel. 

An agency may be created through the operation of 
the law and is known as agency by estoppel. A well 
known writer in a treatise on commercial conduct of 
affairs has said that a large portion of the transactions 
of the modern business world are carried on by simple 
and informal means. A word, look, or gesture often 
suffices to give assent to great undertakings or to set 
in motion the complicated machinery of commerce, that 
little carries with it a train of legal consequences no 
less certain and definite than if the whole were included 
in spoken or written words. This being so, good faith 
is strenuously insisted upon, and one who by his conduct 
has led an innocent party to rely upon, the appearance 



AGENCY BY NECESSITY 217 

of another's authority to act for him, will not be heard 
to deny the agency to that party's prejudice. Thus the 
words or conduct of the party will result in an implied 
agency though they themselves may never have con- 
templated such a thing. So if one knowingly and with- 
out dissent permits another to act for him in a parti- 
cular transaction or in a number of transactions of 
which the particular transaction in the case is one, his 
authority will be presumed so far as necessary to pro- 
tect the rights of other parties who have relied in good 
faith upon the apparent authority, and the principal 
will not be permitted to deny that such other was his 
agent. Thus Jones by his general behavior, leads Smith 
to believe that Eobinson is his agent. Smith is about 
to act on Eobinson's representations and Jones, knowing 
this, fails to interfere and Smith does so act. Jones is 
thereafter estopped from denying the agency. The 
representations must be made with the intent that the 
third party shall act upon them, and he must actually 
act relying in them. 

Agency by Necessity. 

Another instance of implied agency is where the pol- 
icy of the law creates an agency from the necessity of 
the particular situation. 

The most common illustration of this is the agency 
of a wife in the purchase of necessaries ; of a ship-master 
to purchase necessary supplies and provisions for the 
ship, and bind the owner by so doing, and in some of 
our states an agency is implied in the purchase of neces- 
saries by a minor. In all these cases it is absolutely 
important for the party seeking to recover for the goods 
sold, to show that they were in fact necessary. 



sis commercial law. 

Agency by Eatification. 

Another way in which the relation of agency may 
arise is by ratification, which means an express or an 
implied adoption of the acts of another by one for 
whom the other assumes to be acting, but without 
authority, and this results as effectively to establish the 
duties, rights, and liabilities of an agency, as if the 
acts ratified had been fully authorized in the beginning. 
Thus for the purpose of illustrating : Jones has a horse 
which he wishes to sell^ Smith knows of this desire and 
without any authority from Jones, procures a pur- 
chaser in Williams and then informs Jones that he has 
undertaken to sell the horse to Williams on his (Jones') 
behalf. Jones approves of Smith's act, thus making 
it his own and ratifying the agency. 

There are, however, certain essential elements neces- 
sary to an agency by ratification. 

(a) The would-be agent must professedly do the act 
on behalf of an existing principal. 

(b) The approval must be given only with a full 
knowledge of all the facts connected with the 
transaction. 

(c) The approval or ratification must be of the whole 
act, and not of a part only. 

A ratification under these conditions, cannot after- 
ward be withdrawn, and a warranty, if given, will be 
part of the whole act. 

General or Special Agents. 

From the scope of their powers, agents may be general 
or special. A general agent has authority to perform 
acts of a general nature, in the transaction of his 
principal's business; while a special agent's authority 
is limited to special or specific acts. 



ATTORNEY IN FACT 219 

From the nature of their duties, special names are 
given to agents; as, attorneys at law, attorneys in fact, 
brokers, factors or commission merchants, bank cashiers, 
auctioneers, etc. 

Attorney at Law. 

An attorney at law, or lawyer, is authorized by his 
principal, or client, to represent him legally in a certain 
matter; and as long as the relation of lawyer and client 
lasts, the former has authority to do all acts, in or out 
of court, necessary and proper in the latter's behalf. 
The lawyer is generally recognized as being properly 
in control, and having the conduct of the matter in 
hand. 

Attorney in Fact. 

An attorney in fact receives his authority in a letter 
or power of attorney. He has power to represent and 
act for his principal in certain business transactions 
for which the letter or power is given. Great care 
should be taken in drawing up the proper power of an 
attorney in fact. This is the usual form: 

KNOW ALL MEN BY THESE PRESENTS, that I, John 
K. Henry, of the Borough of Manhattan, City, County and 
State of New York, have made, constituted and appointed, and 
by these presents do make, constitute and appoint Eugene 
Knapp, of the same place, my true and lawful attorney for me 
and in my name, place and stead, tojigrant, bargain, and sell 
all my real estate situate in the City of New York, or any part 
thereof, and for such price and on such terms as to him shall 
seem best, and for me and in my name, to make, execute, acknow- 
ledge and deliver good and sufficient[deeds and conveyances for 
the same, either with or without covenants of warranty, hereby 
giving and granting unto my said attorney full power and 
authority to do and perform all and every act and thing what- 
soever requisite and necessary to be done in and about the 
premises, as fully to all intents andfspurposes, as I might or could 



220 COMMERCIAL LAW. 

do if personally present, with full power of substitution and re- 
vocation, hereby ratifying and confirming all that my said at- 
torney or his substitute shall lawfully do or cause to be done 
by virtue hereof. 

In Witness Whereof, I have hereunto set my hand and 
seal the 12th day of October in the year one thousand jiine 
hundred and five. 

Sealed and delivered in the presence of 
Albert Gross. 

State of New York,) 
County OF New York,) 

On the 12th day of October in the year nineteen hundred and 
five before me personally came John K. Henry to me known 
and known to me to be the individual described in, and wha 
executed the foregoing instrument and who duly acknowledged 

that he executed the same. 

John K. Mason, 
Notary Public, 

New York County, 

N. Y. 

Brokers. 

A broker is an agent whose business is to bring parties 
together to an agreement. His compensation depends 
entirely upon his success; for, if the parties fail to 
come to an agreement, the broker receives no com- 
pensation. The word " broker " covers a large field 
of agents; as, real estate brokers, bill and note brokers, 
stock brokers, money brokers, insurance brokers, ship 
brokers, etc. An insurance broker is not an insurance 
agent, whose duty it is to act for the company. 

Factors. 

A factor, or a commission merchant, differs from a 
broker, in that the factor gets the property in his pos- 
session and sells it for a commission. He has, practi- 
cally, the powers of the owner over the goods consigned 
to him. In order to prevent fraud, however, the various 



BANK CASHIER 221 

legislatures have passed Factor's Acts which protect 
innocent third parties who obtain the goods from the 
factor. These acts should be referred to in the various 
jurisdictions. 

Some factors, for an increased commission, guarantee 
the price of goods to their principal, and are known as 
del credere factors. If the buyer fails to pay for the 
goods, the del credere factor must make good to his 
principal. Sometimes, too, a factor makes advances 
of money to the owner of goods sent to him. For these 
advances, as well as for his commissions, he has a lien 
on the goods or the proceeds resulting from their sale. 

While a factor is under orders from his principal, 
still in cases of necessity, or to save himself against loss 
on his advances, he may depart from these instructions. 

Shipmaster. 

A shipmaster is the one in command of the ship 
while on a voyage or in a foreign port. His powers are 
necessarily very extensive. When absolutely necessary 
to protect the ship, or the cargo, he has power to enter 
into contracts for repairs and to pledge the owner's 
credit therefor; to borrow money; to sell a perishable 
cargo; to save it from destruction; etc. 

In the home port, the " Ship's Husband, " or man- 
aging owner, is superior in authority to the shipmaster. 
Here, the " Ship's Husband " arranges for the equip- 
ping, managing, and repairing of the ship, and makes 
all contracts for her passengers and freight. 

Bank Cashier. 

A bank cashier is generally the chief executive of the 
bank. The tellers and subordinate officers are all under 
his direction. He receives and pays out money for the 
bank; he may loan and borrow money; buy and sell 



222 COMMERCIAL LAW. 

bills of exchange; and indorse for collection, or dis- 
count negotiable paper owned by the bank; and he has 
the power to certify checks drawn by depositors against 
the funds of the bank. 

Auctioneers. 

An auctioneer is an agent who sells property, at pub- 
lic sale, to the highest bidder. He is generally required 
to take out a license, and is placed under a bond for the 
proper performance of his duties. His fees, and com- 
pensation come as a commission from the proceeds of 
the sale. He is under instruction from his principal; 
but the usages of auction sales regulate the conduct of 
his business. The property is placed in his care and 
he is responsible for its safe keeping. 

The auctioneer should receive the price in cash at 
the time of the sale, or a deposit of cash, and the balance 
at a future day, as prescribed in the terms of the sale. 
Being responsible for the collection and payment, to his 
principal, of the proceeds of the sale, he may sue for 
the price in his own name. In offering the property, he 
is the agent of the seller; but he becomes the agent 
of the buyer, to the extent of writing the latter's name 
to a memorandum of the sale, to make it binding under 
tlie Statute of Frauds, after the buyer's bid has been 
accepted; and only at the time and place of the sale. 

Termination of the Agency. 

The agency may be terminated in various ways: by 
agreement; by act of either party; and by operation 
of law. 

By Agreement. 

Where there is an agreement between the parties 
forming the agency for some specific object, or for a 



TERMINATION OF THE AGENCY 223 

definite time, or until the happening of some event, it 
is clear that the agency must terminate on the object 
being accomplished, or the lapse of the agreed time; or 
the happening of the event. 
By Act of Either Party. 

In an agency creating a fiduciary relation, the prin- 
cipal may terminate it at any time, none the less holding 
himself liable to the agent for any damages the latter 
may suffer for the revocation. The revocation may be 
as follows : 

KNOW ALL MEN BY THESE PRESENTS, that whereas, 
I, John K. Henry, of the Borough of Manhattan, City, County 
and State of New York, in and by my Letter of Attorney, bear- 
ing date the 12th day of October one thousand nine hundred 
and five did make, constitute and appoint Eugene Knapp, of 
the same place, my true and lawful attorney as by the afore- 
said Letter of Attorney may more fully and at large appear. 

Now KNOW YE, That I the said John K. Henrj'- have revoked, 
countermanded, annulled and made void, and by these presents 
do revoke, countermand, annul and make void the said Letter 
of Attorney above mentioned, and all power and authority 
thereby given, or intended to be given, to the said Eugene 
Knapp. 

In Witness whereof, T have thereunto set my hand and seal 
the 12th day of December in the year of our Lord, one thousand 
nine hundred and five. 

John K. Henry. 

Sealed and delivered in the presence of 
Albert Gross. 

State of New York,) 
County of New York, > 

Be it Known, That on the 12th day of December in the 
year one thousand nine hundred and five before me personally 
came John K. Henry, to me known and known to me, to be the 
individual described in and who executed the foregoing instru- 
ment and who duly acknowledged that he executed the same. 

J. K. Mason, 
Notary Pvhlic, 

New York Co. 



224: co:mmercial law. 

The agvnt may reiiounc-e his agonoy, bur there can 
be no damage where rhe ageiiey is g-ratuirous : or where 
there is no express or implied eoniraet between the 
parties, because where there is no contract, there can be 
no breacli to cau^e damages. 

By OiMiKATioN OF Law. 

"Wliere the agency becomes iUegah it at once terrui- 
nates by operation of htw. So, also, impossibility of 
perfornuince : as ^^here A employs R to sell his (^A's) 
horse, and the horse dies before B has accomplished the 
sale. Death and insanity will immediately terminate 
the agency at the moment the death occurs, or on the 
judicial announcement of the insanity : because there 
can no longer exist any contract between the parties. 
And the bankruptcy of the princi]-)al will also terminate 
the agency, because the principal surrenders control of 
his property and aii'airs and places himself subject to 
the court. 

ActEncy Coupled with ax Interest. 

It is, however, very important to remember that 
where the agency is coupled with an interest in the 
subject-matter, such agency cannot be terminated in 
any way, or for any of the reasons above set forth, ex- 
cept with the consent of the agent. His interest tnust 
necessarily be in the subject-matter which formed the 
basis of his agency. His power is not irrevocable, if 
he have merely an interest in the execution of the 
power, or in the proceeds of his agency. 

XoTiCE OF Termination. 

In order to protect himself against liability, the 
principal should serve notice of the revocation or ter- 
mination of tlie agency, both upon the agent himself 



OBLIGATION OF AGENT TO PRINCIPAL 225 

^and upon those with whom he has dealt. To those 
latter, actual notice must be given; while to others who 
have not dealt with the agent, a general notice in a 
newspaper will be sufficient. 

This rule does not apply generally to cases where the 
agency has been revoked or terminated by operation 
of law. 

Obligations of Pictncipal to Agent. 

A principal is in duty bound to conform to the terms 
t)f his contract with the agent. If, through no fault on 
the agent's part, the principal revokes the agency, the 
former may recover reasonable damages against the 
latter for the breach of contract. If there has been no 
definite compensation fixed between the parties, the 
principal should pay his agent the reasonable worth of 
liis services. He should also reimburse him for all his 
necessary expenses and individual liabilities incurred 
while in the proper performance of his duties from which 
the principal has reaped the benefits. If the acts are ille- 
gal, the agent is not entitled to indemnity from his prin- 
ijipal, except in some instances when the illegality is un- 
known to the agent, and the acts themselves are not con- 
trary to good morals or public policy; as where an auc- 
tioneer sells goods, which, unknown to him, belong to a 
third party and not to his principal, the latter should 
indemnify him in case the true owner calls upon him to 
answer for conversion. 

Obligations of x\gent to Principal. 

It is the agent's duty to obey the instructions of his 
principal and to serve him with all his ability and 
skill; to give him any information he might obtain in 
regard to the business entrusted to his care. He should 
.also act with the utmost good faith in the management 



226 COMMERCIAL LAW. 

of his principars interests. He cannot act for two^ 
masters; he must serve his principal alone. Should he 
act for both parties without their knowledge, he is not 
entitled to compensation from either. 
Principal's Liability for Agent's Acts 

As a general rule, third parties know who the princi- 
pal is for whom the agent is acting. The principal is- 
then spoken of as being disclosed. But there are cases- 
where the principal is undisclosed; as when a factor 
sells goods as his own. In both instances, the principal 
acquires all the rights accruing from the agent's acts 
as though he had done- the act or made the contract 
himself. The principal is, therefore, liable to the third' 
parties for his agent's acts with the qualification, how- 
ever, that these acts must be within the apparent scope- 
of the agent's authority. 

What Is the Apparent Scope of the Agent's Au- 
thority ? 

It is such authority as any reasonably prudent man- 
might infer attaches to the agent in the transaction of 
the particular business in which the latter is engaged, 
for his principal. This authority may be determined^ 
(1) by the powers actually or expressly conferred; (2) 
by the powers reasonabl}^ implied and necessary for the- 
carrying out of the agency; (3) by the powers implied.' 
from the usages and customs attaching to the particu- 
lar business; and (4) by the conduct of the principal 
and the manner in which he holds his agent out to the 
world. These four elements combine to determine an 
agent's apparent scope of authority upon which third 
parties may rely, and any private instruction which a 
principal may give his agent, to change the apparent 
scope of the latter's authority, are not binding on those' 
third parties, unless brought to their knowledge. 



LIABILITY OF agent's TORTS 227 

To illustrate: A employs B, to collect rents on A's 
house. B has several times contracted with C, a plum- 
ber, to make some repairs in the house, C's bills, each 
time, being paid by A. A now instructs B that he is 
only to collect the rents and not to make any contracts 
for repairs. Unless A also informs C to that effect, A 
will still be liable on a contract for repairs made be- 
tween B and C. It will be seen in the foregoing illus- 
tration, that B's express authority was to collect rents, 
but A, by his conduct in paying C's bills, clearly held 
B out as his agent to make such contracts. 

So also by the usages and customs attaching to fac- 
tors or commission merchants, they are authorized to 
sell goods for their principals to the best advantage, 
and even to warrant the quality of the goods. Now, if 
the factor is instructed by his principal not to sell at a 
certain price called for, and the factor does sell, the 
principal, nevertheless, will be bound. 

Liability for Agent's Torts. 

The principal is also liable for every wrong com- 
mitted by the agent while in the course of his duties, 
or in the apparent scope of his authority, and especially 
when committed for the principal's benefit. This rule 
is obviously founded on the great principal of social 
duty, that every man, in the management of his own 
affairs, whether by himself or his agents or servants, 
shall so conduct them as not to injure another; and if 
he does not, and another thereby sustains damage, he 
shall answer for it. 

Differing, however, from a case under contract lia- 
bility, the agent in tort does not escape personal lia- 
bility to the party injured. 



228 COMMERCIAL LAW. 

He may be held liable as well as his principal, even 
though he has committed the wrongful act by the ex- 
press authorization of his principal. 

Criminal Liability. 

A principal may be criminally punished for the crim- 
inal act of his agent or servant, in cases where the 
question of actual evil intent is not involved; as in the 
case of a bartender selling liquor in violation of a 
statute. The bartender's act is the master's act. 
Where, however, actual evil intent is involved, as in 
case of murder, the agent's intent cannot be charged 
to his principal, unless he has actually authorized or 
ratified the criminal act. 

Agent's Liability. 

If an agent induces third parties to form contractual 
relations with a principal who has not authorized him 
to act, and who has refused to adopt the act, the would- 
be agent is guilty of deceit, and may be liable for any 
damages suffered by the third parties. The fact that 
the would-be agent honestly thought that he had au- 
thority to act, will not avail him as against the inno- 
cent third parties who have suffered through his fault. 

Another phase of the agent's liability is in connec- 
tion with contracts under seal, and negotiable instru- 
ments, as bills of exchange and promissory notes. In 
the case of ordinary written contracts, facts may be 
shown to prove that it was intended between the parties 
that the principal should be bound, and not the agent. 
The safe way is to have the contract drawn up in the 
name of the principal and to be signed in his name 
by the agent ; as '^ Tom Brown, by John Jones, agent." 

But in the case of contracts under seal, the rule is 
that one whose name appears in the contract is the 



PRACTICAL QUESTIONS ON AGEN^ 229 

one liable. In such an instrument, if one sets his hand 
and affixes his sea] as " John J ones, agent for Tom 
Brown," John Jones will be bound, and not Tom 
Brown. The words " agent for Tom Brown,^' are 
merely descriptive of John Jones. Great care should 
be taken in signing, so as to bind the principal and not 
the agent. 

AYith promissory notes and bills of exchange, while 
they are presumed to be taken on the credit of those 
whose names appear thereon, the general nature and 
construction of the entire instrument may be shown 
to help fix the liability. But all trouble may be easily 
avoided by making and signing the instrument prop- 
erly. As in the case of the above, it should be, " Tom 
Brown, by John Jones, agent." 

PEACTICAL QUESTIONS ON AGENCY. 

1. Has an agent, who is directed in general terms 
to ship goods by a certain carrier, the authority, as 
between the principal and the carrier, to agree to a ship- 
ment on terms that limit the common law liability of 
the carrier? 

2. Explain what is meant by a del credere factor? 

3. T\Tiat are the rights of a factor who has made ad- 
vances to his principal on goods in the former's hands? 

4. A, the holder of a mortgage, employed his son to 
retain an attorney to foreclose it, and directed B to bid 
for the property at the foreclosure sale on behalf of A, 
but not to bid beyond a certain sum. B attended the 
sale and bid as A directed him to do. Others bid for the 
property more than the sum to which A had limited B, 
and thereupon B bid in his own name and bought the 
property for himself. Assuming that there was no 
actual fraud on B's part, and A consults you as to his 
rights, what would you advise? 



230 COMMERCIAL LAW. 

5. A, a real estate agent, was employed to sell or ex- 
change the house and lot of B for other property and ta 
receive a commission for his services. At the time A 
was employed to sell the farm of C or to exchange it for 
other property, and to receive a commission. Neither C 
nor B knew that A was in the employ of either. The 
agent effected an exchange between B and C, who, 
learning that he is in the employ of both, refuse to give 
him any coramission. The agent brought separate 
actions against both B and C. What results, and why? 

6. A man is sued for necessaries furnished his son by 
a stranger. Plaintiff' proves the infant was without 
necessary clothing, and that the clothing furnished by 
him for the infant was not unfitted to the station of the 
infant. Plaintiff rests and asks for judgment upon the 
facts proved. What should the judgment be? 

7. A contract is executed, signed, and sealed, which 
recites: "John Smith, by his attorney, party of the 
second part." The last clause of the instrument read, 
" In witness whereof, the said Thomas Brown, as agent 
for John Smith, and the said Frank Jaynes have here- 
unto set their hands and seals." John Smith sues Frank 
Jaynes for breach of contract and defendant sets up in 
his answer that he made the contract with Thomas 
Brown and not with plaintiff. WTiat are the rights of 
the parties? 

8. A gave B instructions to go to C and purchase a 
horse for him. B went to C and made the purchase. 
The horse was delivered by C, and then B told C that 
the purchase was for A. W^hat rights has C in the 
matter? Answer in full. 

9. Your client hands a broker $5,000 with which to 
purchase bond and mortgage, which he did. The bond 
and mortgage were left with the broker to collect the 



PRACTICAL QUESTIONS ON AGENCY 231 

semi-annual interest when due, but not to collect the 
principal when due. Broker collected the interest and 
hy a forged satisfaction piece collected the principal 
and satisfied the record and gave the bond and mortgage 
to the mortgagor and absconded with the principal. 
Upon whom does the loss fall? 

10. A husband agreed with his wife that they should 
Hve apart and that he should pay her $10 per week for 
-her support. This was done, but $10 was not enough, 
and she went to a grocer who knew of the contract and 
purchased goods. The grocer sued the husband. What 
are his rights? Answer in full. 

11. A gives B, his attorney in fact, power to sell 
Teal estate. B, as such attorney, knowing that A is in 
need of money, obtains a mortgage on the real estate 
and signs the same as A's attorney under the power to 
sell. He sends the money thus obtained to A. A dies 
intestate. What are the rights of A's heirs as to the 
mortgage ? 

12. The president and board of directors of a ware- 
house company passed a resolution, giving to the 
president of the company authority to sign receipts for 
the goods in the warehouse. The president issued a 
receipt to himself, claiming that he had goods in the 
warehouse, when in fact, there were none. The presi- 
dent then pledged such receipt to the X bank and 
secures money on it. The bank sues the company for 
the amount of the receipt. Judgment for whom, and 
why? 

13. A lease for one year reads : " AB as agent for 
CD, party of the first part, and XY, party of the second 
part." There are the usual covenants, and it is signed 
" AB, agent," and " XY." Upon an action to enforce 



232 COMMERCIAL LAW 

the covenants, brought by XY, CD claims that AB alone 
is liable. State rights of the parties. 

14. An infant living apart from his father, bnt with 
his father's consent, contracts for clothes. In a suit by 
the creditor a defense of infancy is interposed. What 
are the rights of the parties, suppose the contract price- 
was exorbitant? 

15. A, the owner of property, appoints B his agent 
to collect the rent of certain premises. A thereafter 
dies and one of the tenants continues to pay the rent to- 
B. B thereafter absconds. Can the administrator re* 
cover the rent that was paid to B (the agent) by the 
tenant ? 

16. An agent having a sample in his possession 
warrants the goods to come up to the sample. When A,. 
a purchaser, is sued for the purchase price, and he sets 
up the breach of warranty, the plaintiff sets up that the 
agent had no authority. Is his defense to the counter- 
claim available? 

17. A is employed by B as agent. Thereafter A is 
discharged. Subsequent to this discharge, A buys goods 
from C in the name of B and then absconds with the 
goods. Is B liable for the value of the goods? 

18. A grants a power of attorney to his agent in Lon- 
don to execute a certain contract with C. On the 30th 
day of June, 1895, B properly executed the contract 
with C. A had died on the 29th day of June, but 
neither party knew of it. What are the rights as to C 
and the representatives of A? 

19. A, a farmer, engaged B, a broker, to sell his 
farm, and agreed to pay 5 per cent, commission. C, at 
about the same time, also engaged B to look up a farm- 
for him and agreed to pay B 5 per cent, commission^ 
B brought A and C together, and they closed the 



PKACTICAL QUESTIONS ON AGENCY 233 

transaction. Xeither party knew that B was acting for 
the other. B charges both A and C the 5 per cent, com- 
mission, and they both refuse to pay it after they find 
out the above facts. B comes to you for advice. What 
would you say? State the general rule. 

20. A puts $5,000 into the hands of B, his attorney, 
to invest the same in real estate secured by bond and 
mortgage. B is instructed to retain the bond and mort- 
gage and receives interest payments on the same, but not 
the principal. A year later, by an agreement between 
B and the principal debtor, the latter pays B $3,000. 
upon the mortgage and B absconds, taking the same. 
Who must bear the loss? 

21. A husband and wife are living together. Necess- 
aries are sold to the wife by a grocer, and she agrees to 
pay for them, and the grocer enters the account against 
her on his book. The grocer then sues the husband. 
WTiat are the rights of the husband? 

22. What constitutes agency? How is the authority 
of an agent acquired? Distinguish between general 
agents and special agents. Is the authority of a 
general agent unlimited? To what extent is the prin- 
cipal bound by the acts of his agent? Mention three 
classes of agents. 

23. Distinguish between agent and servant; between 
agent and " independent contractor." In what relation 
respecting agency does a partner stand toward the firm 
of which he is a member? When must a contract of 
agency be in writing and when under seal? 

24. Does the relation of principal and agent always 
rest on consent? If not, give an example of agency not 
resting on consent. May an infant act as agent so as to 
bind the principal ? Is an unincorporated club a compe- 



234 COMMERCIAL LAW. 

tent principal? When may the members of such a club 
be held as principals? 

25. How may an agent be appointed? In what way 
is an agent vested with power? What are the implied 
powers of an agent? 



CHAPTER XVII. 

EEAL PEOPEETY. 

Property means in its broad sense anything which is 
the subject of ownership. 

It is divided into two classes, real and personal. 
These terms come from the old divisions of actions given 
a man who is deprived of his property, into real and 
personal actions. 

All things recoverable in real actions were real proper- 
ty, where an actual recovery was or could be had; and 
all other property was personal. There could be no 
actual recovery, except in cases where actions of replevin 
would lie, otherwise persons detaining property could 
not be compelled to deliver the identical thing but could 
elect to pay damages. The action, therefore, was accord- 
ingly in personam to obtain damages and the property 
involved was called personal property. 

Distinction Between Eeal and Personal Property. 
Eeal property at the death of the owner goes at once 
to the heir or devisee, the ownership of real property 
is transferred by written instrument executed with cer- 
tain perscribed formalities, the transfer thereof is 



236 COMMERCIAL LAW. 

governed by the law of the place where land is situated, 
and there is a difference of taxation in real property. 

Eeal property consists of lands, tenements, and 
heriditaments. 

Personal property on the death of its owner goes to 
the personal representative or administrator of the de- 
ceased, and through this representative to the distributee 
or legatee. 

It is used in paying the debts of the decedent before 
the real property. It passes generally by sale or delivery 
and the mode of transfer is governed by the domicile 
of the owner. 

Personal property consists of goods and chattels. 

Land. 

Land, meaning the soil and minerals of the earth is 
real property, except parts of the land actually severed 
with the intent to make them personalty. Land in- 
cludes not only soil but everything attached to it or 
growing on or imbedded in it, extending upwards in- 
definitely and downwards to the centre of the earth. 
In a limited sense^ land means soil of the earth, water 
on it, minerals, fossils, etc., imbedded in it. 

Emblements denote the annual products of the land 
which have resulted from a tenant's own care and labor, 
which products he is entitled to take away after his 
tenancy has ended. 

Annual crops are all vegetable products of the earth, 
as corn, wheat, rye, etc., which are produced annually 
by labor, industry and manurance and are called " f ruct- 
us industrials " as distinguished from those spontane- 
ous or natural products which are called "fructus 
naturals." Whenever such crops are planted by one 
having an interest of uncertain duration and the in- 



WHAT FIXTURES ARE REMOVABLE 237 

terest terminates without his fault before the crops are 
harvested, there is a right to enter, cultivate, harvest, and 
remove them. This right is given on the principle that 
the crops are not planted with any intention to benefit 
the one next entitled to occupy the land, but with the 
expectation of reaping them. 

No one is entitled to emblements who has terminated 
his estate by his own act. The right to remove crops 
may be given in any case by express contract. In some 
States this subject is regulated by statute. 

Fixtures. 

Chattels which are annexed to the land are called 
fixtures, and can be divided into two classes : 

Eeai. Fixtures. 

Those which cannot lawfully be removed by the owner 
of a limited interest in land. They are real property. 

Chattel Fixtures. 

Those which can be lawfully removed by an owner 
of a limited interest in the lands and are regarded as 
personal property. 

Buildings erected upon land and chattels annexed to 
building on land are termed fixtures. When annex- 
ation is made by owner in fee of land such fixtures be- 
come real property. They may of course again become 
personalty by being actually severed from the land with 
that interest. 

What Fixtures are Eemovable. 

Whether a fixture is a real or personal fixture and 
lawfully removable, depends upon the presumed intent- 
ion with which it was annexed. The intention is de- 
termined with reference (a) to the express contract of 
the parties; (b) statutory regulations, which conclu- 



238 COMMERCIAL LAW. 

sively presumes intention; (c) character of the annex- 
ation; (d) adaptation of fixture for use with realty; 
(e) nature of chattels annexed, as trade, agricultural, 
or domestic fixtures; (f) relation of party making 
annexation, as lessee, tenant for life, owner in fee. 

Intention. 

The real or chattel character of a fixture is largely 
a question of fact. The tendency of modern cases is to 
make the intention with which the fixture is annexed 
the test of its character and to treat other things as 
evidence of that intention. 

It is not however a secret intention which controls, 
but the intention which the law presumes from the acts 
and situation of the parties at the time of making the 
annexation. 

(a) The parties between whom the question is likely 
to arise may settle all doubt in advance by express con- 
tract. This is an instance of express intention. 

(b) In some states the question of fixtures has been 
a matter of legislative enactment and certain classes 
of annexations are by statute declared to be real fixtures, 
and others to be chattel fixtures. 

CllARACTEK OF THE ANNEXATION. 

(c) The manner in which a fix:ture is attached or 
annexed to the realty is indicative of the intention of 
which it was placed there. It shows whether it was in- 
tended to be permanent or subsequently removed. Some 
eases make the manner of fastening a test of its charac- 
ter as a fix:ture, in other cases a thing does not become 
a real fixture unless it is so annexed to the land that its 
severance would cause considerable injury to the realty. 
Annexation is largely a question of fact in each case. 
It has been held that there may be an attachment of a 



CONSTRUCTIVE ANNEXATION 239 

thing to land by its weight alone, for example : a heavy 

statue on a pedestal. 

Severance. 

Chattels which have become realty by permanent 
annexation may be converted into personalty by being 
severed from the realty by the owner with intent to 
produce that effect. A mere intention to sever is not 
sufficient. There need be no actual severance, but may 
be a constructive severance as for example, the execution 
of a bill of sale or chattel mortgage. A mere temporary 
severance though actual will not change the character 
of a real fixture, for example, machinery taken from a 
mill for repairs does not thereby become personalty. 

Constructive Annexation. 

Chattels may become realty by constructive annex- 
ation. Keys to a home, storm windows, etc., though at 
times not fastened to a house will pass with a convey- 
ance of realty, also saws, belts in factory, and rollers in 
iron mills. 

(d) Adaptation for use with the realty applies to 
use of machinery, engines, boilers in mills and factories, 
without which the business therein could not be carried 
on. Such things as duplicate parts of machinery have 
been held to be real fixtures. 

Nature of Fixtures. Trade Fixtures. 

(e) One must look at the nature of the article 
annexed. It is not presumed that one engaged in trade 
or manufacturing will attach valuable chattels to the 
realty if his interest is of a limited or uncertain dura- 
tion, and intend that the thing so annexed shall remain 
part of the realty. Annexations of this kind are called 
trade fixtures and their removal is allowed with con- 
siderable freedom. 



S40 COMMERCIAL LAW. 

Examples : Show cases, counters, shelves, engines, 
boilers, machinery, tanks in distillery, and even build- 
ings have been held removable as trade fixtures. 

Agricultural fixtures are those fixtures used in farm- 
ing, as barns, sheds, and farm machinery, such as cotton 
gins. Their removal is not allowed as freely as in 
trade fixtures. 

Manure made on farm becomes a part of the realty 
and cannot be lawfully treated as personalty by one not 
the owner of the fee, except when it is made from 
materials not obtained on the premises as in the case of 
such material obtained from a livery stable. Manure 
passes with the freehold to a vendee of land. 

Domestic Fixtures. 

Certain annexations may be removed, as domestic 
fixtures which comprise such things as stoves, wash- 
stands fastened to the house, gas fixtures, chimney 
pieces, marble shelves, etc. 

In the annexation of domestic fixtures, it is held 
that there is a stronger presumption of intention to 
make them permanent additions to the realty than in 
either trade or agricultural fixtures and therefore there 
is less freedom of removal. 

Party Making Annexations. 

For determining the intention with which annexation 
was made, it is essential to look at the relations of the 
person making the annexation to the land, and dur- 
ation of his interest in it. The parties between whom 
question may arise are lessee as against lessor, vendee 
as against vendor, heir as against personal representa- 
tives of an owner in fee, mortgagee as against mort- 
gagor, tenant as against landlord, and presumptions 
are in favor of the first party in the above cases. 



ESTATE IN FEE-SIMPLE 241 

A tenant enjoys great freedom in removing fixtures 
^because the presumption is strong that he made the 
•annexation in order to secure more complete enjoyment 
during his term and not with the intention of benefit- 
ing his landlord. 

Time of Eemoval. 

Where tenant's interest is of definite duration, the 
removal must be before its termination. Where in- 
terest is of indefinite duration the removal must be 
within a reasonable time after its expiration. This does 
not hold when removal is wrongfully prevented by in- 
junction or otherwise. 

A tenant holding over with consent of his landlord 
does not lose the right of removal. 

Estate. 

The interest or ownership which a man has in real 
.property, is expressed in law by the word estate. 

That interest may be absolute and complete, or it may 
be partial and conditional; it may be for all time, or to 
end on the happening of a certain event. It may be for 
the lifetime of the owner or during the lifetime of an- 
other person not the owner; it may not commence until 
a future time ; it may be for a definite period or merely 
during the pleasure of some person. 

These different interests are distinguished as different 
kinds of estates : Estate in fee-simple ; estate in fee-tail ; 
estate in dower; estate by the curtesy; estate for life; 
estate for years; estate at will. 

Estate in Fee-Simple. 

This is an estate of inheritance limited to a man and 
his heirs, absolutely without any end or limitations and 
iis the largest possible estate in land. This estate gives 



242 COMMERCIAL LAW. 

to" the owner the right of using his estate in any way- 
he may see fit, even to destroying it, as for instance in 
tearing down a house. 

An estate of this kind can be created by deed, in 
which case the word " heirs " should be used as to 
^^ John Smith and his heirs " to show the desire to pass 
an estate in fee. In some states, as New York for in- 
stance, statutes have been passed which prevent the 
defeating of an estate in fee because the word " heirs "^ 
had not been used. 

An estate in fee may also be created by will and the 
intention of the testator governs as to the nature of the^ 
estate. In many states, by statutes, a fee simple is pre- 
sumed to be intended if nothing contrary is expressed. 

Estates Tail. 

An estate tail is an estate of inheritance which de- 
scends to the heirs of the body of donee or some special 
class of such heirs. Only heirs in direct descending 
line can take, thus a brother of a tenant in tail can- 
not take it as an estate of smaller interest than that of" 
fee simple. 

Estate for Life. 

An estate for life is not an estate of inheritance, and 
its duration may be for a period of the tenants own life, 
or the tenancy may be during the life of another person 
not in possession of the land or for an uncertain period' 
which may continue during a life or several lives. SucL 
an estate may be created conventionally by an agree- 
ment of the parties, or legally by the operation of law. 
Estate for Years. 

This estate usually arises out of a contract called a 
lease for the possession of land during a certain number- 
of vears. 



acquirements of real estate 243 

Estate at Will. 

An interest in land depending for its duration upon 
the will or pleasure of the parties in interest. They are 
created sometimes by leases and sometimes by operation 
of law, as where a tenant under a lease, holds over in 
possession after the time specified in the lease. 

Estates by Dower. 

This estate is the provision the law makes for a widow 
out of the land on tenements of the husband for her 
support. In most states it is a life estate in one-third 
of the husband's realty. The necessary requisites are: 
(1) lawful marriage; (2)siesen of the husband dur- 
ing coveture; (3) death of husband before the wife; 
then the right to dower becomes consummated ; for until 
the death of the husband the wife has only a contingent 
interest which becomes vested on his death. 

The widoVs right to dower is governed by the law 
of the place where the land is situated. 

Estate of Curtesy. 

By the common law the husband was entitled to 
curtesy, which is an estate for the life of the husband 
in all the wife's realty provided the following conditions 
concur : There must be a valid marriage ; there must be 
issue of such marriage born alive and capable of in- 
inheriting ; siesen of wife during coveture ; death of wife 
before husband. 

Curtesy has grown into disuse in England, and has 
been either abolished or modified in many of the states 
of this country. 

Acquirement of Eeal Estate. ■ 

A party may acquire title to land in two ways: by 
descent, as where a person on the death of his 'ancestor 



244 COMMERCIAL LAW. 

inherits his property as the heir at law ; and by purchase 
which includes every other legal method except descent. 

Conveyance of Eeal Property. 

The conveyance or transfer of an estate inland must 
be made in writing and signed by the parties making 
the transfer. This written instrument is called a deed 
and must conform to the laws of the place, where the 
land purported to be conveyed by the deed, lies. 

Eequisites of a Deed. 

A deed should be written or printed, or partly written 
and partly printed in ink on parchment or paper; and 
it should be completely finished before it is delivered. 
It should have proper and competent parties to it; 
should be made without compulsion or restraint; and 
should contain the usual formal parts which are as 
follows : 

1st. The premises, which embraces the names of the 
parties and usually their residences, the consideration 
for which the deed is given, and a careful description of 
the property granted. 

2nd. The habendum, which defines the nature and 
extent of the estate which the grantee is to take. 

3rd. The tredendum, which is used when something 
is to be reserved to grantor out of the estate granted, as 
where land is conveyed subject to mortgage, or a right 
of way across the land sold is reserved, etc. 

4th. The condition, when any is to be imposed upon 
the purchaser as for instance that he shall not put a 
slaughter house, or tannery, or bone yard, or sell intoxi- 
cating liquors upon the premises. 

5th. The covenants, when such are agreed upon 
which in the ordinary warranty deed are three, viz : that 
the grantor is well seized of the premises in fee simple; 



REQUISITES OF A DEED 245 

that the premises are free from all encumbrances; and 
that he will forever warrant and defend the same. 

6th. The conclusion, which mentions the execution 
of the instrument, its date, and contains the signature 
of the grantors, their seals, and the certificate of 
acknowledgement of the deed. The following is the 
usual form of a deed: 

THIS INDENTURE, made the seventh day of August in the 
year nineteen hundred and five BETWEEN 

Andrew B. Jackson and Caroline his wife, both of Shokan, 
Ulster County, New York, party of the first part and Samuel 
Buller of New York City, New York, party of the second part, 
WITNESSETH, that the said party of the first part, in con- 
sideration of Two thousand five hundred ($2500) Dollars, lawful 
money of the United States, paid by the party of the second 
part, do hereby grant and release unto the said party of the 
second part, his heirs and assigns forever, 

ALL that track or parcel of land situated in the town of Shokan, 
Ulster County, New York, being known as the lot number one 
hundred and seventy six (176) in said town, and bounded and 
described as follows, to wit: Beginning at the south east corner 
of land owned by James Colby and running thence north one 
hundred rods (150); thence east to the east hne of said lot num- 
ber one hundred and seventy six (176); thence south to land 
owned by Alvin Williams; thence west to the north west corner 
of land owned by said Williams; thence south to the center of 
the highway; and thence west to the place of beginning, contain- 
ing two hundred and three (203) acres of land, more or less. 
TOGETHER with the appurtenances and all the estates and 
rights of the party of the first part in and to said premises. 
TO HAVE AND TO HOLD the above granted premises unto 
the said party of the second part, his heirs and assigns forever, 
subject, however, to a purchase money mortgage of even date 
hereof. 

AND the said Andrew B. Jackson, party of the first part does 
covenant with the said party of the second part as follows: 

First. That the party of the first part is seized of the said 
premises in fee simple and has good right to convey the same. 

Second. That the party of the second part shall quietly enjoys 
the same premises. 



246 COMMERCIAL LAW. 

Third. That the said premises are free from encumbrances. 
Fourth. That the party of the first part will execute or pro- 
cure any further necessary assurance of the title to said premises. 
Fifth. That the party of the first part will forever warrant 
the title to said premises. 

IN WITNESS WHEREOF, the parties of the first part have 
hereunto set their hands and seals the day and year first above 
written. 

Andrew B. Jackson, 
Caroline Jackson. 
In presence of 
J. B. Mason. 

State of New York/ 
County of New York, 

On this 7th day of August in the year of our Lord one thou- 
sand nine hundred and five before me personally came and ap- 
peared Andrew B. Jackson and Caroline Jackson to me 
personally known and known to me to be the individuals de- 
scribed in and who executed the within conveyance, and who 
acknowledged to me that they executed the same. 

L. K. Snow, 
Notary Public^ 
Ulster County. 
Various Kinds of Deeds. 

There are many kinds of deeds. Those most fre- 
quently used being the full warranty deed and quit-claim 
deed. 

By the warranty deed the person making the convey- 
ance (the grantor) not only undertakes to transfer title 
to the premises described in said deed, but warrants 
the title and undertakes to defend the grantee against 
all lawful claims to the property. 

By the quit-claim deed the grantor undertakes to 
convey only such title as he holds to the property de- 
scribed in the deed. Under this deed the grantee is 
afforded no protection but takes the property subject to 
any and all defects which may exist in the title, and 
cannot recover the price paid for the quit-claim deed. 



VARIOUS KINDS OF DEEDS 247 

though it afterwards turns out that his title is not good. 

The following is the usual form for a quit-claim 
deed: 

THIS INDENTURE, made the 5th day of January in the year 
one thousand nine hundred and five BETWEEN 

John B. Dill (unmarried), of the City of New York, County 
of New York and State of New York, party of the first part, 
and Alexander Hamel of the same place party of the second 
part, 

WITNESSETH, That the said party of the first part, in con- 
sideration of Five hundred ($500) dollars, lawful money of the 
United States, paid by the party of the second part, do hereby 
remise, release and quit-claim unto the said party of the second 
part, his heirs and assigns forever, 

ALL that track or parcel of land situated in the Borough of 
Manhattan, County and State of New York and more particularly 
distinguished and designated as premises No. 53 West One Hun- 
dred and Tenth Street, which said premises are more particularly 
described as follows; to wit: Beginning at a point on One Hun- 
dred and Tenth street situated seventy five feet from the north 
east corner of Fifth Avenue and One hundred and tenth street, 
running thence in an easterly direction twenty five (25) feet, 
thence in a northerly direction and parellel with Fifth Avenue 
one hundred feet, thence westerly and parallel with One hundred 
•and tenth street twenty five feet and thence in a southerly direc- 
tion parallel with Fifth Avenue one hundred (100) feet to the 
point or place of beginning. 

TOGETHER with the appurtenances and all the estates and 
rights of the party of the first part in and to said premises. 
TO HAVE AND TO HOLD the above mentioned and described 
premises unto the said party of the second part, his heirs and 
assigns forever. 

IN WITNESS WHEREOF, the said party of the first part has 
hereunto set his hand and seal and day the year first above 
written. 

John B. Dill. 

In Presence of 
Thomas Hogan. 
State of New York,| 
County OF New York,) 

On the 5th day of January in the year one thousand nine hun- 
dred and five, before me personally came John B. Dill to me per- 



248 COMMERCIAL LAW. 

sonally known, and known to me to be the person described in 
and who executed the foregoing instrument in writing, and. 
acknowledged that he executed the same. 

Thomas Hogan, 
Notary Public, 

New York County. 

The deed should always be signed by the grantor's 
wife, if he has one, so that a perfect title may be given 
to the purchaser. In this way the wife releases her 
dower right, of which we wrote on a foregoing page. 

Recording the Deed. 

After the deed is signed and acknowledged before a 
notary public or other proper officer and delivered tO' 
the grantee, it should immediately be recorded in the 
office of the County Clerk or Register, thus giving 
notice to everybody that he, the grantee is the owner of 
the premises conveyed by the deed, and making it im- 
possible for the grantor to convey the property to 
another person. 

Search. 

To protect the purchaser against any attempt to 
sell to him a parcel of land already conveyed to 
another person, he should institute a search in the office 
of the County Clerk or Register where records are kept 
to ascertain if the grantor has a clear title; i. e., that 
there are no judgments, liens or other mortgages than 
those specified in the deed on the property. 

This work is now generally done by Title Guaranty 
Companies, who for a reasonable consideration will 
make the search and issue a policy guaranteeing a clear 
title. 

Mortgages. — Definition of a Mortgage. 

A mortgage is a conveyance or transfer of property,, 
either real or personal, as security for the payment of a. 



FOR.AI OF MORTGAGE. 249 

debt in discharge of some other obligation, such as ful- 
fillment of a contract ; or performance of an act ; or the 
like. The essential elements of a mortgage are : 

(a) That there is a debt, legal liability, or obliga- 
tion actually existing at the time of its execution. 

(b) An intention to secure that debt or obligation 
by some form of conveyance and agreement. 

(c) A clause in the instrument to defeat same in 
case of payment or performance at the time agreed 
upon. 

(d) A right to foreclose under the agreement for 
breach of its terms. 

The person who gives the mortgage is called the 
mortgagor and the one to whom it is given is called the 
mortgagee. The following mortgage contains the ele- 
ments above set forth and is given to secure the debt set 
forth in the bond which follows in a subsequent page: 

THIS INDENTURE, made the seventh day of August in the 
year of our Lord one thousand nine hundred and five 
BETWEEN 

Samuel Buller of New York County, New York, party of the 
first part and Andrew B. Jackson of Shokan, Ulster County, 
New York, party of the second part, the said party of the said 
part being hereinafter known and designated as the mortgagor, 
and the said party of the second part being hereinafter known 
as the mortgagee. 

WHEREAS, the said Samuel Buller justly indebted to the 
mortgagee in the sum of Three Thousand $(3000) Dollars lawful 
money of the United States of America, secured to be paid by a 
certain bond or obligation bearing even date herewith, in the 
penal sum of twice the amount of the said indebtedness, condi- 
tioned for the payment of the said amount of indebtedness, as 
aforesaid, to the mortgagee, his heirs or assigns, on the seventh 
day of August which will be in the year one thousand nine hun- 
dred and seven and interest thereon, to be computed from the 
first day of August 1905, at and after the rate of six per centum 
per annum, and to be paid semi-annually on the first day of 



250 COMMERCIAL LAW 

January and July in every year until the said principal sum 
shall be wholly paid. 

IT BEING THEREBY EXPRESSLY AGREED that the 
whole of the said principal sum shall become due after default in 
the payment of interest, taxes, or assessments, as hereinafter 
provided; 

NOW THIS INDENTURE WITNESSETH, that the mortgagor, 
for insuring the payment of the said sum of money mentioned 
in the condition of the said bond or obligation, with interest 
thereon, and also for and in consideration of the sum of one 
dollar, to me in hand paid by the mortgagee, the receipt whereof 
is hereby acknowledged, does hereby grant and release unto the 
mortgagee, and to his heirs or assigns forever, 
ALL that track or parcel of land situated in the town of Shokan, 
Ulster County, New York, being known as lot number one hun- 
dred and seventy six (176) in said town, and bounded and de- 
scribed as follows, to wit: Beginning at the south east corner 
of land owned by James Colby and running thence north one 
hundred and fifty (150) rods; thence east to the east line of said 
lot number one hundred and seventy six (176), thence south to 
land owned by Alvin Williams; thence west to the north west 
corner of land owned by said Williams, thence south to the center 
of the highway; and thence west to the place of beginning, con- 
taining two hundred and three (203) acres of land, more or less. 
TOGETHER with the appurtenances and all the estate and 
rights of the mortgagor in and to said premises. 
TO HAVE AND TO HOLD the above granted premises, unto 
the said mortgagee, his heirs, administrators and assigns forever. 
PROVIDED ALWAYS, that if the said mortgagor, shall pay 
unto the said mortgagee, his heirs, administrators or assigns, the 
said of money mentioned in the condition of the said bond or 
obligation, and the interest thereon, at the time and the manner 
mentioned in the said condition, then these presents and the 
estate hereby granted, shall cease, determine and be void. 
AND the said mortgagor convenants with the mortgagee as 
follows: 

FIRST. — That the mortgagor will pay the indebtedness as 
hereinbefore provided and if default be made in the payment of 
any part thereof the mortgagee shall have the power to sell the 
premises herein described according to law. 



FORM OF MORTGAGE 251 

SECOND. — That the mortgagor will keep the buildings on the 
said premises insured against loss by fire for the benefit of the 
mortgagee. And should the mortgagee, by reason of any such 
insurance against loss by fire, as aforesaid, receive any sum or 
sums of money for any damage by fire to the said building or 
muildings, such amount may be retained and applied by said 
bortgagee toward payment of the amount hereby secured, or the 
same may be paid over either wholly or in part to the said mort- 
gagor, his heirs, administrators or assigns, to enable said mort- 
gagor, to repair said buildings or to erect new buildings in their 
place, or for any other purpose or object satisfactory to the said 
mortgagee, without affecting the lien of this mortgage for the full 
amount secured thereby before such damage by fire, or such 
payment over, took place. 

THIRD. — And it is hereby expressly agreed that the whole of 
said principal sum shall become due at the option of the said 
mortgagee after default in the payment of any installment of 
principal or of interest for thirty days, or after default in the 
payment of any tax or assessment for ninety days after notice 
and demand. In case of the actual or threatened demolition or 
removal of any building erected upon the said premises, or in case 
of a fire rendering the building on said premises untenantable, 
the whole of said principal sum shall become due and payable at 
the option of the said mortgage. 

FOURTH. — That the mortgagor will execute any further 
necessary assurance of the title to said premises and will forever 
warrant said title. 

FIFTH. — That if default shall be made in payment of the 
principal sum mentioned in the condition of the said bond, or of 
the interest which shall accrue thereon, or of any part of either, 
at the respective times therein specified for the payment thereof 
the said mortgagee shall have the right forthwith, after any such 
default, to enter upon and take posession of the said mortgaged 
premises, and to let the said premises, and receive the rents, 
issues and profits thereof, and to apply the same, after payment 
of all necessary charges and expenses, on account of the amount 
hereby secured, and said rents and profits are in the event of any 
such default hereby assigned to the mortgagee. 

SIXTH. — And the mortgagee shall also be at liberty, imme- 
diately after any such default, upon proceedings being com- 



252 COMMERCIAL LAW. 

menced for the foreclosure of this mortgage, to'^apply for th& 
appointment of a receiver of the rents and profits of the said 
premises without notice, and the mortgagee shall be entitled to 
the appointment of such a;,receiver^^s a matter of right without 
consideration of the value^bf the mortgaged premises as security 
for the amounts due .the mortgagee^.or the solvency of any person 
or persons liable for the payment of such amounts. 

SEVENTH. — And the said mortgagor does further covenant 
and agree, that in default of the payment of all taxes, charges and 
assessments which may be imposed by law upon the said mort- 
gaged premises, or any part thereof, that it shall and may be 
lawful for the said mortgagee ,without[notice to or demand from 
the mortgagor, to pay the amount of any such tax, charge or 
assessment, with any expenses attending the same, and any 
amount so paid the said mortgagor covenants and agrees to repay 
to the said mortgagee, with interest thereon, without notice or 
demand, and the same shall be a lien on the said premises, and be 
secured by the said bond and by these presents; and the whole 
amount hereby secured, if not then due, shall thereupon, if the 
said mortgagee so elect, become due and payable forthwith. 

EIGHTH. It is hereby further agreed, by the parties hereto,, 
that if, at any time or times before said bond is paid, any law or 
laws be enacted reducing the taxable value of land by deducting 
therefrom any lien thereon, or changing the laws in relation to 
taxes on debts secured by mortgages or the manner|;of collecting 
such taxes, then said bond and this mortgage shall, at the option 
of the mortgagee to be signified by a written notice to the owner 
of the mortgaged premises, requiring the payment of the mort- 
gage debt, become due and payable at the expiration of thirty 
days after the giving of such notice. 

NINTH. The mortgagor,|;'or any subsequent^owner of the 
premises described herein, shall, upon request, made either per- 
sonally or by mail, certify, in writing, to the mortgagee or any 
proposed assignee of this mortgage, the amount of principal and 
interest that may be due on this mortgage, and upon the failure 
to furnish such certificate after the expiration of six days in case 
the request is made personally, or after the expiration of thirty 
days after the mailing of such request in case the request is made 
by mail, this mortgage shall^.become^due^at the option of the 
holder thereof. 



FORM OF BOND 253 

TENTH, Every'provision for notice and demand or request 
contained herein shall be deemed fulfilled by written notice and 
demand or request personally served on one or more of the per- 
sons who shall at the time hold the record title to the premises, 
or on their heirs or successors, or mailed to such person or per- 
sons or their heirs or successors, at his, their or its address to the 
mortgagee last known. 

ELEVENTH. The amount advanced on this mortgage at the 
time of the execution and delivery hereof, is the sum'^iof Three 
Thousand ($3000) Dollars, and the maximum amount of prin- 
cipal indebtedness or obligation, not including interest, taxes, 
assessments, water rates, insurance or other expenses made by 
the mortgagee to preserve the mortgage lien, which is or under 
any contingency may at any time be out standing so as to be 
secured by this mortgage, is the sum of Three Thousand ($3000) 
Dollars. 

IN WITNESS WHEREOF, the said mortgagor has hereunto 
■set his hand and seal the day and year first above written. 

Signed, sealed and delivered in the 
Presence of J. B. Mason. Samuel Buller 

State of New York, I 
€ouNTY OF New York,) 

On this seventh day of August 1905, before me personally came 
Samuel Buller to me known and known to me to be the individual 
described in and who executed the foregoing mortgage, and who 
duly acknowledged that he executed the same. 

J. B. Mason, 
Notary Public, 

New York County. 

FORM OF BOND 
KNOW ALL MEN BY THESE PRESENTS, That I, Samuel 
Buller, of New York County, New York held and firmly bound 
unto Andrew B. Jackson, Shokan, Ulster County, New York, in 
the penal sum of Six Thousand Dollars lawful money of the 
United States of America, to be paid to the said Andrew B. Jack- 
son, his heirs, administrators, or assigns 

FOR WHICH PAYMENT, well, and truly to be made I bind 
myself, my heirs, executors, and administrators, firmly by these 
presents. Sealed with my Seal Dated the seventh day of August 
one thousand nine hundred and five. 



254: COMMERCIAL LAW. 

THE CONDITION of the above obligation is such that if the 
above bounded Samuel Buller, his heirs, executors or administra- 
tors shall well and truly pay, or cause to be paid, unto the above 
named, his heirs administrators or assigns, the just and full sum 
of Three Thousand ($3000) Dollars on the seventh day of August, 
1907, and the interest thereon to be computed from the 1st day of 
August 1905 at the rate of 6 per centum per annum and to be paid 
semi-annually on the 1st days of January and July without any 
fraud or other delay, then the above obligation to be void, other- 
wise to remain in full force and virtue. 

AND it is hereby expressly agreed, that the whole of the principal 
sum shall become due at the option of the above named Andrew 
B. Jackson, his legal representatives or assigns, after default in the 
payment of any instalment of principal or of interest for thirty 
days or after default in the payment of any tax or assessment 
upon the premises described in the mortgage accompanying this 
bond for ninety days, after notice and demand. 
AND IT IS ALSO AGREED, that the said party of the first part 
will keep the buildings on said premises insured agaisnt loss by 
fire for the benefit of the mortgagee therein. And the above 
named Andrew B. Jackson, his legal representatives and assigns, 
shall also be at liberty, immediately after any such default or any 
default in the payment of any amount due on this bond, upon 
a complaint filed or any other proper legal proceedings being 
commenced for the foreclosure of the m.ortgage accompanying 
this bond, to apply for, and shall be entitled, as a matter of right 
and without regard to the value of the mortgaged premises as 
security for the amounts due upon said mortgage or this bond, 
or the solvency of any person or persons liable for the payment of 
such amounts, to the appointment of any competent court or 
tribunal or receiver of the rents and profits of the premises de- 
scribed in said mortgage, with power to lease the said premises 
or such part thereof as may not then be under lease, and with 
such powers as may be deemed necessary, who, after deducting 
all proper charges and expenses attending the execution of the 
said trust, as receiver, shall apply the residue of the said rents and 
profits to the payment and satisfaction of the amount remaining 
due on said mortgage, or to any deficiency which may exist after 
applying the proceeds of the sale of the said premises to the pay- 
ment of the amounts remaining due, including interest and the 
costs of the foreclosure and sale. 



RIGHTS AND LIABILITIES OF THE MORTGAGOR 255 

Sealed and delivered in the presence of 

J. B. Mason Samuel Buller. 

State of New York, \ ^^ 
County of New York,) 

On this seventh day of August in the year of our Lord one 
thousand nine hundred five before me the undersigned personally 
came and appeared Samuel Buller to me personally known and 
known to me to be the individual described in and who executed 
the within instrument, and who duly acknowledged to me that 
he executed the same. 

K. Brown, 

Notary Public, 

New York County. 

Mortgage is a Lien. 

The mortgage is a lien on the property described in 
the instrument and as between mortgagor and mort- 
gagee the lien of the mortagage attaches at the time 
of delivering^ but with respect to third parties the 
mortgage does not act as a lien upon the property, 
until it has been recorded in , the proper public office 
for recording snch instruments, whereupon it becomes 
a notice to everyone. 

The mortgagor is not prevented from selling the 
mortgaged premises nor from trying to secure a further 
loan by executing other mortgages on the same property. 
These other mortgages in no way effect the first 
mortgage since that is a prior lien and must first be 
discharged, before the subsequent mortgages may be 
satisfied. 

Rights and Liabilities of the Mortgagor. 

The mortgagor is looked upon as the owner of the 
mortgaged estate and may retain possession of the same 
until foreclosure of the mortgage for a breach of the 
conditions therein contained. The mortgagor is under 
duty not to impair in any way the rights of the mort- 



256 COMMERCIAL LAW. 

gagee by the manner in which he deals with the property, 
or the mortgagor cannot remove a building situated in 
the premises or in any other way lessen the value of the 
same. The mortgagor is also entitled to any surplus 
that may exist after the property is sold under fore- 
closure proceedings, and he is likewise liable for any 
deficiency that may result under such sale. 

Assignment or Mortgage. 

It is a well established fact that the mortgagee may 
assign his interest in the mortgaged premises, and he 
usually does so in an assignment of the following form : 

KNOW ALL MEN BY THESE PRESENTS, THAT I, Andrew 
B. Jackson, of Shokan, Ulster County,. New York, of the first 
part, in consideration of the sum of Three thousand ($3,000) 
Dollars lawful money of the United States to me in hand paid by 
Edward Coles, of the same place, of the second part, at or before 
the ensealing and delivery of these presents, the receipt whereof 
is hereby acknowledged, have granted, bargained, sold, assigned, 
transferred and set over, and by these presents do grant, bargain, 
sell, assign, transfer, and set over, unto the said party of the 
second part, a certain Indenture of Mortgage, bearing date the 
seventh day of August in the year one thousand nine hundred and 
five and made by Samuel Buller to Andrew B. Jackson to secure 
the payment of the sum of Three Thousand ($3000) Dollars and 
interest and recorded in the County Clerk's office, Ulster County, 
on the 8th day of August, 1905. 

TOGETHER, with the bond or obligation therein described, and 
the money due and to grow due thereon, with the interest. TO 
HAVE AND TO HOLD the same unto the said party of the 
second part, his heirs, executors and assigns forever. Subject 
only to the proviso in the said Indenture of Mortgage mentioned : 
AND I do hereby make, constitute, and appoint the said party 
of the second part my true and lawful attorney, irrevocable, in 
my name or otherwise, but at his proper costs and charges, to 
have, use and take^ all lav/ful ways and means for the recovery of 
the said money and interest : and in case of payment to discharge 
the same as fully as I might or,,could do if these presents were not 
made. 



FOEECLOSURE OF THE MORTGAGE 25T 

IN WITNESS WHEREOF, I have hereunto; set my hand and 
seal the 16th day of October in the year one thousand nine hun- 
dred and five. 
Sealed and delivered in the presence of 

J. B. Mason Andrew B. Jackson. 

State of New York 
County of Ulster 

On the 16th day of October in the year one thousand nine 
hundred and five before me personally came Andrew B. Jackson 
to me known, and known to me to be the individual described in, 
and who executed the foregoing instrument, and who duly ac- 
knowledged that he executed the same. 

L. K. Snow, 

Notary Public, 
Ulster County. 

Satisfaction of the Mortgage. 

When the time arrives for the payment of the debt 
secured by the mortgage, the mortgagee on receiving 
payment, will execute a proper discharge of said mort- 
gage and known as a satisfaction of the mortgage. This 
is recorded in the proper office for recording such in- 
struments and thereby acts as a removal of the lien 
upon the premises. 

Foreclosure of the Mortgage. 

In case of default in payment, or a breach of any of 
the conditions contained in the mortgage, the mortgagee 
may start foreclosure proceedings, and these are gene- 
rally regulated by the statute of the state in which the 
land is situated. A regular judicial proceeding is had 
which results in a decree authorizing a sale, the proceeds 
of which should be paid to the mortgagee, and the 
surplus, if any, to the mortgagor. Should there be a 
deficiency, judgment is rendered against the mortgagor 
for that deficiency, and any other property of his may be 
sold in order to satisfy the same. 



258 COMMERCIAL LAW. 

PEACTICAL QUESTIONS ON EEAL PEOPEETY. 

1. A was the owner of a lot on which there was a 
small barn resting on stones at the corners. B owned 
land adjoining A's lot and purchased by a warranty- 
deed, without any reservation, a strip of 15 feet next 
immediately off from A's lot upon which one-half of 
the barn stood. At the time the deed was executed it 
was verbally agreed between A and B that the former 
reserved the barn and that he should be allowed to re- 
move it off from the 15 feet to the remaining portion 
of his lot, the barn to be A's property. A subsequently 
removed the barn to his lot, and B, in violation of his 
agreement, sued A for the value of the portion of the 
barn standing on the part of the lot purchased from A. 

Can B recover, or not? If so, on what theory? If 
not, why? State the principle involved. 

2. A person died intestate, leaving no property ex- 
cept a piece of real estate, upon which was growing 
at the time a piece of rye, and also a crop of apples. 
He has debts which either the apples or rye will sat- 
isfy. How are the apples or rye to be considered or 
distributed ? 

3. A sells a farm to B for $10,000; B does not re- 
cord his deed, but goes into actual possession. After- 
wards A sells the same property to C for $8,000. 
records his deed. Who owns the farm? 

4. A sells a farm to B by deed, upon which there 
is at the time eight cords of four-foot wood, piled in 
the woods, and a quantity of manure. A sues B for 
wrongfully retaining possession of the wood and man«- 
ure, claiming an oral agreement on part of B to allow 
him to obtain the wood and manure. What are the 
rights of the parties? 



PEACTICAL QUESTIONS ON REAL PROPERTY 259 

5. What is essential to the proper execution of a deed 
conveying land? 

6. When does the record of a deed take effect? 

7. How does a warranty deed differ from a quit 
claim deed? 

8. In whom is vested the legal title to firm realty? 

9. When the legal title to firm realty is vested in 
one of several partners, what are his equitable obliga- 
tions respecting such property? 

10. A leases land of B for one year and puts a 
building thereon to conduct his business. At the expir- 
ation of the year the lease is renewed by parole agree- 
ment for five years. A short time before the expira- 
tion of the second lease A consults you as to his rights 
to remove the building. What is your advice? 

11. What is an easement? A owns the X farm and 
the Y farm adoining. He makes a way through the Y 
farm to the X farm and uses it for 40 years. A then 
sells to C the X farm " with all easements " and the 
Y farm to B, " subject to all easements." B seeks to 
close the way across the Y farm. State C's rights. 

12. State whether each of the following is real or 
personal property; growing crops, standing trees. 
Would the statute of frauds apply to a sale of either or 
both of the above mentioned properties? 

13. What is real property?. When one buys for a 
stipulated sum a piece of land on which is a house 
fitted up for occupancy, what is he entitled to receive? 

14. A, by agreement, conveys land to B. Subse- 
quently it is mutually agreed that A shall retain the 
land, and with the intention of carrying out this agree- 
ment B hands back the deed to A. In whom does the 
title vest? Explain. 

15. In what way does a deed become operative? 



CHAPTER XVIII. 

BANKEUPTCY. 

Purpose of Bankruptcy Laws. 

A more striking example of the differences, time 
and progress have established in the treatment of persons 
who are indebted and unable to pay their debts at the 
present day and under the old common law, cannot be 
found than by comparing the Bankruptcy Law with the 
law for the imprisonment of debtors. 

Under the old law for the imprisonment of debtors, a 
person unable to meet his obligations was thrust into 
prison until his friends could collect sufficient funds 
with which to purchase his release, if they were unsuc- 
cessful, the debtor remained in prison without ability 
to help himself ; his family ; or pay off his creditors. 

The Bankruptcy Laws on the contrary, have for their 
main object, first an equal partition of the debtor's 
property among his creditors; second, after such divi- 
sion, the discharge of the debtor from all his indebted- 
ness. Thus a person honestly failing in business, 
perhaps through misfortune or unforseen circumstances 
can, after his discharge, begin business anew without 
having his past debts hanging over him as a drawback. 



voluntary petition. 261 

Who May Apply to be Adjudged a Bankrupt. — 
Voluntary Proceedings. 

Any person or partnership may apply to be adjudged 
bankrupts. A corporation is expressly excluded from 
filing a voluntary petition in bankruptcy proceedings, 
to be adjudged bankrupts. 

The proper procedure in voluntary bankruptcy, is 
for the applicant to file with the court wherein his 
petition is made, an inventory of his assets if there are 
any, and a schedule of all his debts, including a list of 
his creditors; their address, the amount due to each of 
them; the consideration for the debt, and the nature 
and extent of his liabilities. 

The inventory of the applicant should show the 
amount and kind of property, its location, and value. 

The applicant must then verify or swear as to the 
truth of the application, inventory, and schedules before 
a notary public or other competent person, who is 
authorized to take acknowledgements. The inventory 
and schedules must be filed in triplicate. The following 
are the forms generally adopted: 

To the Honorable Edwin Holt, Judge of the District Court of the 
United States for the Southern District of New York. 

The Petition of John Smith of the Borough of Manhattan, 
in the County of New York and Southern District of New York, 
and State of New York, 

Respectfully Represents: That he has had his principal 
place of business (or has resided or has had his domicil) for the 
greater portion of six months next immediately preceding the 
Fihng of this Petition at No. 150 Fifth Avenue, Borough of 
Manhattan, City and County of New York and within said 
judicial district; that he owes debts which he is unable to pay 
in full; that he is willing to surrender all his Property for the 
benefit of his Creditors, except such as is exempt by law, and 
desires to obtain the benefit of the Acts of Congress relating to- 
Bankruptcy. 



262 COMMERCIAL LAW. 

That the Schedule hereto annexeci, marked A, and veritied 
by your Petitioner's Oath, contains a full and true statement of 
all his debts; and (so far as it is possible to ascertain) the names 
and places of residence of his Creditors, and such further state- 
ments concerning said debts as are required by the provisions 
of siiid acts: 

That the Schedule hereto annexed markai B. and veritied by 
your Petitioner's Oath, contains an accurate inventory of all his 
Property, both Real and Personal, and such fm-ther statements 
concerning said Property as are required by the provisions of 
said acts: 

Wherefore your Petitioner Prays, That he may be ad- 
judget-i by the Court to be a Bankrupt, within the purview of 
said Acts. 

John Smith, 
Pet it ion cr 
Andrew F. Bell, 

Attorney. 

United States of America, | ^ 
Southern District of New York. I 

I. John Smith, the Petitioning Debtor mentioned and de- 
scribed in the foregoing Petition, do hereby make solemn oath 
that the Statements contained therein are true, according to 
the best of my knowledge, information and belief. 

John Smith, 
Pctitoiner. 

Subscribed and sworn to before me, thi^ 4th day of January^ 

A.D., 1906. 

George Ross, 



Notarial 
Seal. 



Notary Public, 

New York County- 



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COMMERCIAL LAW. 



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272 



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277 



SUMMARY OF DEBTS AND ASSETS. 

[From the statements of the bankrupt in Schedules A and B.] 



Schedule A 



Schedule A. 
Schedule A. 
Schedule A. 

Schedule A. 



Schedule B. 
Schedule B. 



Schedule B, 



Schedule B. 

Schedule B. 
Schedule B. 



1 (1) Taxes and debts due United States 
1 (2) Taxes due States, counties, dis- 
tricts and municipalities 

1 (3) Wages 

1 (4) Other debts preferred by law 

2 
3 
4 



2-c 
2-d 
2-e 
2-f 
2-g 
2-h 
2-i 
2-k 
2-1 

2-m 
3a 
3-b 
3-c 
3-d 
3-e 



Secured claims 

Unsecured claims 

Notes and bills which ought to be 
paid by other parties thereto . . . 
Accommodation paper 



Schedule A, total 

1 Real estate 

2-a Cash on hand 

2-b Bills, promissory notes and secur- 
ities 



Stock in trade 

Household goods, &c 

Books, prints and pictures 

Horses, cows and other animals 

Carriages and other vehicles . . . 
Farming stock and implements . . 

Shipping and shares in vessels. . . 

Machinery, tools, &c 

Patents, copyrights and trade- 
marks 

Other personal property 

Debts due on open accounts 

Stocks, negotiable bonds, &c. . . . 

Policies of insurance 

Unliquidated claims 

Deposits of money in banks and 
elsewhere 



Property in reversion, remainder, 

trust, &c 

Property claimed to be excepted 
Books, deeds and papers 



Schedule B, total. 



none 

100 
none 

400 
4,500 

none 
none 



5,000 



none 
none 

none 

350 
none 
none 
none 
none 
none 
none 
none 

none 
none 

125 
unk'n 
none 
none 



none 

25 
none 



$500 



5,000 



00 



500 



278 commercial law. 

Involuntary Proceedings. 

Three or more creditors may petition the court for an 
adjudication of insolvency or bankruptcy against their 
debtor, provided they have provable claims amounting 
in all to $500 or over, or if the creditors be less than 
twelve in number, one of them having a provable claim 
of $500 or over, may petition the court. 

Acts of Bankruptcy. 

Before the creditors as above set forth can file their 
petition to have the debtor declared a bankrupt, the 
debtor must have done or committed certain acts, termed 
acts of Bankruptcy. These acts of Bankruptcy can be 
divided into five classes as follows : 

First: Fraudulent Conveyance. 

It would be an act of bankruptcy, where there is a 
fraudulent conveyance or transfer of property by the 
debtor with the intent and for purpose of hindering, 
delaying, or defrauding his creditors, by putting the 
property so conveyed or transferred beyond the reach 
of process of creditors against the debtor. A fraudulent 
intent is essential, for if the debtor makes the convey- 
ance in good faith, it is not an act of bankruptcy. 

Second: Giving Creditors Preference. 

If a debtor is insolvent or contemplates insolvency 
and gives any of the creditors a preference by transfer- 
ring his property over to them it is an act of bankruptcy. 

Third: Assignment for the Benefit of Creditors. 
An assignment by the debtor for the benefit of the 
creditors would be an act of bankruptcy. 

Fourth: Eemoval or Concealment of Property. 

The Bankruptcy Law of July 1, 1898, makes it an 

Act of Bankruptcy for a debtor to conceal or remove, or 



creditors' petition. 279 

to permit to be concealed or removed any part of his 
property with intent to hinder, delay, or defraud 
his creditors, or any of them. 

Fifth: An Admission by the Debtor. 

An admission by the debtor in writing of his in« 
solvency and his consent to be adjudged a bankrupt 
would be considered an Act of Bankruptcy. 

For anyone or more of these five acts of bankruptcy, 
the creditors may petition the Court to have the debtor 
declared a bankrupt. The usual form of a creditor's 
petition is as follows : 

CREDITORS' PETITION. 
To the Honorable John Gilbert, Judge of the District Court of 
the United States for the Southern District of New York: 

The petition of Samuel Dix of 27 Broadway, New York City, 
and Louis Appel, of 173 Sixth Avenue, New York City, and 
Henry Wilcox, of 150 Fifth Avenue, New York City, respectively 
shows: 

That William Holmes, of New York City, has for the greater 
portion of six months next preceding the date of jfiling this 
petition, had his principal place of business at 340 Broadway, 
in the County of New York, State of New York, and the dis- 
trict aforesaid, and owes debts to the amount of $2,150 and over. 
That your petitioners are creditors of said William Holmes, 
having provable claims amounting in the aggregate, in excess of 
securities held by them, to the sum of over S500. That the 
nature and amount of your petitioners claims are as follows: 

Samuel Dix For goods sold and delivered S 850 

Louis Appel '' " " " " 1200 

Henry Wilcox " " " " " 100 

And your petitioners further represent that said William 
Holmes is insolvent, and that within four months next preced- 
ing the date of this petition, the said William Holmes committed 
an act of bankruptcy, in that he did heretofore, to wit, on the 
5th day of July, 1906, transfer and convey all his property to one 
James Blake, New York City without any consideration there- 
fore, and as your petitioners verily believe for the purpose of 
hindering, delajnng, and defrauding his creditors. 



280 COMMERCIAL LAW. 

Wherefore your petitioners pray that service of this petition, 
with a subpoena be made upon William Holmes, as provided in 
the Acts of Congress relating to Bankruptcy, and that he may 
be adjudged by the court to be a bankrupt within the purview 
of said acts. 

Samuel Dix, 
Louis Appel, 
Henry Wilcox, 



Walter Hobbs, Attorney. 



Petitioners. 



} 



United States of America, 
Southern District of New York. 

Samuel Dix, Louis Appel, and Henry Wilcox, being three of 
the petitioners above named, do hereby make solemn oath that 
the statements contained in the foregoing petition, subscribed by 
them are true. 

Sworn to before me, George Mason, this seventh day of July, 
1906. 

George Mason, 

Notary Public, 

New York County. 



Notarial 
Seal. 



Upon a hearing. by the Court, if it be determined that 
sufficient cause is shown, the debtor is declared a 
bankrupt. 

Inventory and Schedules. 

The debtor must make and file with the Court a veri- 
fied inventory of all his assets, if there are any, and a 
schedule of all his debts. 

The inventory must show the kind and nature of his 
assets, their location, and the money value thereof. 

The schedules should contain a list of all the creditors, 
their residence, and amount due each, and the consid- 
eration for the debts. 

Exempt Property. 

In the inventory the debtor may claim certain prop- 
erty for his own use on the ground that such property 



COMPOSITIONS. 281 

is exempt from being included in the assets by virtue of 
the exemption law of his state. It is proper to note 
here, that each State has its own statutes of exemption, 
and a reference to the particular State statutes must be 
made to ascertain the nature of the goods exempt. 

Subsequent Proceedings. 

The petition with the inventory and schedule is then, 
referred to a Eeferee, appointed by the United States 
District Court, for his investigation and recom- 
mendation. 

Notice is sent to all the creditors, who meet at ac 
appointed day and file their claims against the bankrupt 
If the bankrupt has any assets the creditors will elect 
a Trustee to take charge of them, pending the bank- 
ruptcy proceedings. 

All the property and rights of property (except that 
which is exempt) of every kind and nature, whether 
real, personal, or mixed belonging to a debtor at the 
time he is adjudged a bankrupt, pass to the Trustee to 
be administered for the benefit of the creditors. 

Compositions. 

The bankrupt may make such arrangements with the 
creditors as will be mutually satisfactory, for the paying 
off of their claims. This is called a composition. A 
meeting of the creditors is called for the purpose of 
discussing the terms of the settlement. 

In order to facilitate the consideration of a proposal, 
the creditors have a right to investigate the affairs of 
the bankrupt, and accordingly the debtor may be ex- 
amined as to the conduct of his business, and be com- 
pelled to produce his books and papers for examination- 

After the examination and discussion by the creditors 
they vote on the acceptance or rejection of the compo- 



282 COMMERCIAL LAW. 

sition. Only those creditors who have proved their 
claims are entitled to vote in the composition. A 
majority vote of the creditors is necessary, and when 
their assent has been obtained, the composition must be 
confirmed by the court. If the composition is confirmed, 
then the cash value of the bankrupt's estate is divided 
among the creditors in proportion to their respective 
debts. 

DiSCHAEGE OF THE BANKRUPT. 

After the composition has been affected the bankrupt 
may apply for his discharge. 

If no composition has been consummated, the debtor 
is nevertheless entitled to his discharge if he has turned 
over to his creditors all the property which is liable for 
the payments of his debts. 

Where certain facts appear, such as fraud and un- 
equitable action on the part of the debtor, the court 
may withold the discharge. The creditors are the ones 
who may object to the debtor's discharge, and under 
the law they must file within ten days after their ob- 
jections have been made, written specifications setting 
forth the grounds on which the creditor opposes the 
discharge of the bankrupt. 

The following is the discharge usually granted: 

DISCHARGE OF BANKRUPT. 
District Court of the United States ) 
Southern District of New York. ) 

Whereas, John Smith of the Borough of Manhattan, City and 
County of New York, in said district, has been duly adjudged a 
bankrupt, under the Acts of Congress relating to bankruptcy, 
and appears to have conformed to all the requirements of law in 
that behalf, it is therefore ordered by this Court, that the said 
John Smith be discharged from all debts and claims which are 
made provable by said acts against his estate, and which existed 
on the fourth day of January, 1906, on which day the petition 



PRACTICAL QUESTIONS ON BANKRUPTCY. 283 

for adjudication was filed by him, excepting such debts as are 
byjlaw excepted from the operation of a discharge in bankruptcy. 

Witness the Honorable Edwin Holt, Judge of said District 
Court, and the seal thereof this twenty-fifth day of March, A.D. 
1906. 
.; ' Malcom Brown, 

(seal'of the court.) Clerk. 

Effect of a Discharge. 

By obtaining his discharge, the bankrupt is relieved 
of all liability from the debts proven against him, and 
even from the debts, which he failed to include in his 
schedules if the omission was without fraud. 



PEACTICAL QUESTIONS 0^^ BAXKEUPTCY. 

1. What is the source of our present bankruptcy law? 

2. Mention three things that may be treated as acts 
of bankruptcy. 

3. May a partnership be adjudged bankrupt? 

4. Does a discharge in bankruptcy release a bankrupt 
from his personal debts, and if so, how may he after- 
ward legally obligate himself to pay any such debt? 

5. How much must a debtor owe to enable his credi- 
tors to force him into bankruptcy? 

6. Is it necessary that a debtor shall have committed 
an act of bankruptcy? 

7. A petition of involuntary bankruptcy has been 
filed with the court asking that A be adjudged a bank- 
rupt. Proof is offered that the alleged bankrupt, whose 
residence and domicile had for years been in another 
State, had his principal place of business in the district 
where the petition was filed up to a time four months 
prior to the filing of such petition, after which he had 
no place of business. Has the court got jurisdiction in 
the matter? 



284: COMMERCIAL LAW. 

8. A lived with his family on a farm in Pennsyl- 
vania, and the branches of business conducted by him 
were raising and selling farm products, buying and 
selling farm products, selling farm products on com- 
mission, buying and forthwith slaughtering live stock 
and selling meat. He had a stall in a market house in 
Wilmington, Delaware, where he exhibited and sold all 
but a comparatively small proportion of the produce 
handled by him. What he sold in Wilmington was not 
delivered pursuant to contract entered into elsewhere,, 
but the contract of sale and the delivery of the subject 
of sale were contemporaneous and effected at his stall. 
You desire to file a petition i^ bankruptcy against A. 
In which court would you file it? That of Pennsyl- 
vania or Delaware? 

9. J filed a petition in voluntary bankruptcy, and the 
schedules annexed to the petition showed no property 
except such as is exempt under the laws of the State, 
and but a single debt, which is a judgment, from which 
the petitioner would not be relieved by a discharge in 
bankruptcy. Has the court jurisdiction to grant him 
a discharge? 

10. Smith, an insolvent debtor, sold all his property 
to Jones, who is not a creditor, and then applied the 
proceeds to the full payment of a part of his creditors, 
leaving others unpaid. Has he committed an act of 
bankruptcy ? 

11. B, one of the partners of an insolvent firm, with- 
draws a considerable amount of money from the part- 
nership and makes a secret transfer of it to his brother- 
in-law. Is this sufficent to constitute an act of bank- 
ruptcy ? 

12. Certain creditors of A receive the following- 
letter : 



PKACTICAL QUESTIONS ON BANKRUPTCY. 285 

" New York, May 1st, 1906. 
Dear Sir: 

After taking inventory of all my stock and figuring up my assets 
and liabilities I find that I shall be unable to pay the debts which 
are due you. I am very sorry that I must make this statement 
to you, but I think it advisable that you should know my exact 
condition at the present time. 

Yours very truly. 

A." 

k creditor who receives this letter consults you in the 
matter. What would you advise? 

13. B, an infant, residing in Illinois, has a petition 
in bankruptcy filed against him by certain creditors 
ivhose claims the infant can repudiate on obtaining his 
majority. Should the petition be allowed? 

14. In an involuntary proceeding in bankruptcy 
against an ice company by former customers to whom 
it had agreed to furnish ice for several years at a certain 
price per ton, the evidence showed that only a few 
months of such contracts had expired, when the com- 
pany became unable to fulfill them : that the petitioners 
used a thousand tons a year: that under the new con- 
tracts which they had been compelled to make they were 
paying an excess over the price specified in the broken 
contracts of from sixty cents to $1.50 per ton : that they 
made unsuccessful attempts to get it cheaper, and that 
the price of ice fluctuated from year to year. The 
damages which the petitioners have sustained have been 
found to exceed $1,000. Can they have the ice company 
adjudged a bankrupt? 

15. A was adjudged a bankrupt. Before being so 
adjudged he had made application to the Patent Office 
in Washington for letters patent on a certain invention 
of his. Letters patent were issued to him after he had 
been adjudged a bankrupt. Does the trustee in bank- 
ruptcy obtain title to the patent? 



286 COMMERCIAL LAW. 

16. An examination of a bankrupt held before the 
referee discloses the fact that he had $150 on deposit 
in a savings bank and he is the owner of a mortgage 
on some real property. He has failed to include these 
in his schedule. What should be done in the matter? 

17. The majority creditors of a bankrupt have 
signed an acceptance of an offer of composition and in- 
voked the action of the court thereon. There is no 
fraud on the part of the bankrupt in inducing them to 
accept. Can they thereafter withdraw their signatures? 



CHAPTER XIX. 

ESTATE OF PERSONS DECEASED. 

There can be no doubt that one of the incidents of 
the ownership of property is the right of its disposition 
by the owner, such disposition to take effect after his 
death. The means by which this is done is called a will. 

Definition of a Will and Codicil. 

A will may be defined as the legal declaration of a 
man's intentions which he wills, to be performed after 
his death. The term will, is generally understood to 
include all codicils. A codicil is an addition to a will, 
or an explanation or alteration thereof in reference to 
some particular, and assumes that in all other respects 
the will is to remain in full force and effect. 

Form of a Will. 

Xo special form is required in preparing a will up 
to the point of its execution. Any writing materials 
capable of giving and receiving permanent impressions 
may be used for this purpose. The will may be written 
in any language, understood by or translated to the 
testator or person making the will. The execution of 
the will must be in accordance with the statutes of the 



288 COMMERCIAL LAW. 

particular state or country in which it is drawn. Under 
these various statutes some or all of the following re- 
quirements are necessary to a legal execution of a will: 

1. Signing of the will by testator. 

2. Acknowledgement of such signing before witnesses. 

3. Publication of the will, as such, to the witnesses. 

i. Eequests for the signatures of the witnesses by the 
testator. 

5. Attestation by the witnesses. 

The following form of a will is drawn up in compli- 
ance with the requirements of the Laws of the State 
of New York relating to wills : 

In the name of God, Amen. 

I. John Black, of the City of New York, being of sound and 
disposing mind and memory, do make, publish, and declare this 
my last will and testament, as follows: 

I. I order and direct that all my just debts and funeral ex- 
penses shall be paid, as soon as they conveniently may be paid, 
after my decease. 

II. I Jgive and bequeath to my daughter Susan, wife of William 
Smith, the sum of one thousand dollars ($1000). 

III. I give and bequeath to my grandson, Harry Black, of 
Troy, N. Y., the gold watch which was presented to me by my 
descendants on my fiftieth anniversary. 

IV. I give and bequeath to my son, Walter Black, the sum of 
five thousand dollars ($5000) to be paid out of my money which 
is deposited in the Fifth National Bank of New York City. 

V. I give and devise the house and lot, which is known as 
number 230 East 100th Street, in the City and County of New 
York, to my uncle, Ephriam White, in trust, nevertheless, to 
receive the rents and profits and pay the net proceeds thereof 
to my mother, Jane Black, during her natural life, and after tha 



FORM OF WILL. 28l> 

death of my mother, to pay said net proceeds to my son Walter 
Black during his natm-al life. After the death of my mother 
and that of my said son Walter, the trust hereby created shall 
cease and the said house and lot shall go to the youngest son of 
Walter Black and to the heirs and assigns of such youngest son, 
provided, however, in case such youngest son should be under 
twenty-one years of age at the time of his father's death and 
should die before he attained his majority, then it is my will that 
the said house and lot should go to my brother, Frank Black and 
to his heirs and assigns forever. 

VI. I give and bequeath to my daughter Nellie all of my bank 
stocks and railroad stocks, also all jewelry belonging to me, not 
otherwise disposed of. 

VII. All the rest, residue, and remainder of my property I 
give, devise, and bequeath to my son, James, and to his heirs, 
executors, administrators, and assigns forever. 

VIII. I hereby appoint my son James and my uncle Ephriam 
White, executors of this my last will, and testament; and I order 
and direct that my executors shall not be required to give bonds 
conditioned for the faithful performance of their duties. 

IX. I hereby authorize and empower my executors to sell at 
public or private sale, any or all of my real estate; and give good 
and valid deeds or conveyances thereof. 

X. I hereby revoke all other wills and codicils by me hereto- 
fore made. 

In witness whereof, I have hereunto subscribed my name and 
affixed my seal, this twentieth day of July, in the year of our 
Lord one thousand nine hundred and five. 

John Black (seal) 
Witnesses 

Mary Jones, 
William Hopkins, 
Jack Conway. 

Subscribed at the end and sealed by the said John Black, the 
testator named in the foregoing will, in the presence of each of 
us, and at the time of making such subscription, the above instru- 
ment was declared by the said testator to be his last will and 
testament, and then we and each of us, at the request of the said 
testator, in his presence and in the presence of each other, did 
sign our names as w^itnesses thereto, at the end of the will. 



290 COMMEECIAL LAW. 

Mary Jones, residing at 65 First Avenue, New York City. 
■, William Hopkins, residing at 65 First Avenue, New York City 
Jack Conway, residing at 410 East 2d Street, New York City. 

Who May Make a AYill. 

Any person not disqualified by either legal or natural 
incapacity may make a will. Legal incapacity exists 
or has existed in the case of married . women and 
aliens, while natural incapacity exists in the case of 
infants and those whose mental capacity does not meet 
with the requirements of statutes that a testator must 
be of sound and disposing mind. 

A testator has a sound mind within the meaning of 
the statute, when he can understand and carry in mind 
in a general way, the nature and situation of his prop- 
erty, and his relation to the persons around him, to those 
who naturally have some claim to his rememberance, 
and to those in whom and the things in which he has 
been chiefly interested. He must understand the act 
which he is doing, and the relation in which he stands 
to the objects of his bounty and to those who ought to 
be in his mind on the occasion of making his will. 

An insane person, other than monomaniac, is with- 
out testamentary capacity. There are other natural 
causes affecting the mental capacity of the person mak- 
ing the will, and it is always proper to prove to the 
court where the will is offered for probate and it is 
contested, that the testator was afflicted with some 
mental disease, or that undue influence Avas brought to 
bear on him. 

Probate of Wills. 

The probate of a will is a certification by the proper 
court clothed with authority, for that purpose, that the 
will has been executed by a competent testator in the 



INTESTACY. 



291 



manner required by law. The principal steps in the 
probate of a will are: 

1. The filing of a petition for the probate of the will. 

2. The serving of a notice of this fact upon the per- 
sons interested. 

3. Pleadings of the opponents to the probate of the 
will. 

A foreign will is one which has been probated in the 
testator's domicile, tinder which rights are claimed in 
a foreign jurisdiction. Such wills must ordinarily be 
probated or recorded in the second Jurisdiction to en- 
able any suit to be brought therein in respect to the 
rights or propert}' of the testator, or to render the will 
operative upon the realty there situated. 

Intestacy. 

^^llere a deceased person has failed to make disposi- 
tion of his propert}- by valid will, it is disposed of by 
the law regulating intestate succession. Each state has 
its own laws of succession or statutes of distribution 
and a reference must be made to them to determine 
the share and proportion of propert}' which the relatives 
of the deceased person take. 

A fair example of the order of distribution of the per- 
sonal property of the deceased in case of intestacy, is 
that adopted by the state of Xew York, which for con- 
venience we will tabulate as follows : 



WHO TAKES AND WHAT 13 TAKEN IF DECEDEXT LEAVES A 



Widow and children 


^ to widow. 


1 to children to 
share equally or 
their legal rep- 
resentatives. 


Widow and no children or 
legal representative of them 


h to widow 


h to next of kin of 
decedent. 



292 



COMMERCIAL LAW. 



WHO TAKES AND WHAT IS TAKEN IF DECEDENT LEAVES A 



Widow and no decendant, 
parents, brother, sister, 
nephew, or niece. 



Widow and brother, sister, 
nephew, and niece and 
no descendant or parent. 



No widow but leaves chil- 
dren. 



No widow or children or 
representatives of a child. 



No children or representa 
tives no father but leaves 
a widow and a mother 



No widow. 



A widow, a father and no 
child or descendant. 



A father, no widow, no 
child or descendant. 



All to widow. 



^ to widow and 
all if the residue 
does not exceed 
$2000; if resi- 
due exceeds 
$2000 widow 
gets her ^ + 
$2000. 



Remainder to 
brother and sis- 
ter of decedent 
or their repre- 
sentatives. 



All distributed among children or 
their legal representatives. 



All to next of kin in equal degree to 
deceased or their legal representa- 
tives. 



^ to widow. 



^ divided equally 
to mother, 
brother, and 
sister or their 
representatives. 



All equally to mother, brother and 
sister or their representatives. 



^ to widow. 



^ to father. 



All to father. 



A widow, a mother, no 
child or descendant, no 
father, brother or sister 
or their representatives. 

A mother, no widow, child 
or descendant,no father, 
brother or sister or their 
representatives. 



^ to widow. 



^ to mother. 



All to mother. 



If decedent was illegiti- 
mate and leave a mother 
and no child or descend- 
ant or widow. 



All to mother, but if mother is dead 
relatives of decedent on the part of 
mother take as if decedent had 
been legitimate. ^^ 



EXECUTORS AND ADMINISTRATORS. 293 

Descendants and next of kin of decedent of equal de- 
gree share equally and if the representatives of descen- 
dants or next of kin take, they only take the share which 
the one whom they represent would be entitled to if 
living. 

No representation is admitted among collaterals after 
brother's and sister's descendants. 

Eelatives of half-blood take equally with those of 
whole-blood in equal degree. Eepresentatives of such 
relatives take in same manner as representatives of 
whole-blood. 

Descendants and next of kin of deceased, begotten 
before death, but born after, take as if born in life time 
of deceased and had survived him. If women die leav- 
ing illegitimate children and no lawful issue, such 
children inherit the personal property as if legitimate. 

The above provisions are from the Statute of Distri- 
bution in the State of New York. 

Executors and Administrators. 

The distribution of the personal property of the de- 
cedent according to the tables above, cannot be accom- 
plished except through an administrator appointed by 
the court. Wliere the decedent has left a will, there 
will be generally found a provision whereby the de- 
cedent appoints a person as executor to carry into effect 
the provisions of the will. Therefore, it becomes 
necessary to consider in a general way the appointment, 
rights, duties, and compensation of executors and ad- 
ministrators, all of which is governed by the laws of 
the respective states in which application is made for 
such appointment, and reference must be made to such 
statutes, for while the underlying principles may be the 
same, a different procedure is adopted in different 



294 COMMERCIAL LAW. 

jurisdictions. For the purpose of illustration we shall 
select that adopted by the State of 'New York. 

Appointment of Executors and Administrators. 

It is the duty of the person or persons designated in 
the will as the executor or executors to offer the will 
for probate immediately after the death of the testator. 
After the will has been permitted to probate, the person 
or persons named therein as executors, who are com- 
petent by law to serve and who appear and qualify will 
receive letters testamentary. A creditor of the estate 
or a person interested in it may offer objections to the 
appointment of such individual and the court is bound 
to look into such objections, and if they are legal and 
sufficent, to withold the granting of letters testamentary. 
Such legal disqualifications are : (a) where the person is 
incapable of making a contract; (b) under the age of 
twenty-one years; (c) an alien, not an inhabitant of 
the state; (d) a person who shall have been convicted 
of an infamous crime; (e) a person who, on proof, is 
found by the court to be incompetent to execute the 
duties of such trust by reason of drunkeness, dishonesty, 
improvidence or want of understanding; (f) if the per- 
son is unable to read or write the English language, 
but this latter disqualification is left to the discretion 
of the court for enforcement. 

In case letters are not issued to the executor named 
in the will, a legatee or creditor, who shall qualify may 
be appointed to take charge of the estate on giving 
suitable bonds, and he then gets letters testamentary 
with the will annexed and would be governed by the 
provisions of the will. 

Where a person has died without leaving a will, 
letters of administration are granted on his estate. 



POWER DUTY or EXECUTORS AND ADMINISTRATORS. 295 

Such letters of administration are granted to the 
relatives of the deceased who may accept in the follow- 
ing order: First, to the surviving wife; second, to the 
children; third, to the father; fourth, to the mother; 
fifth, to the brothers ; sixth, to sisters ; seventh, to grand- 
children; eighth, to any other next of kin entitled to 
share in the distribution of the estate. If any of the 
persons so entitled be minors, administration shall be 
granted to their guardians, if none of the said relatives 
or guardians will accept the same, then to the creditors 
of the deceased; and if no creditors apply or qualify 
then to the Public Administrator. 

The same disqualification hold against persons apply- 
ing for letters of administration as appertain to ex- 
ecutors. The administrator is also required to give 
bonds for the faithful performance of his duties in the 
administration of the estate. 

Power and Duty of Executors and Administrators. 

It is the duty of the executor or administrator to take 
charge of all the property of the estate and to make a 
complete inventory of the same. For this purpose the 
executor or administrator may ask the court to appoint 
two appraisers to assist him. These appraisers fix a 
value on the property as a basis of charging the execu- 
tor or administrator, as between him and the persons 
interested in the estate. The appraisers are allowed 
besides actual expenses a sum not exceeding five dollars 
a day. The legatees and next of kin are entitled to a 
notice of such appraisement. 

Everything which does not go to the heirs-at-law as 
realty, should be put down in the inventory as assets 
of the estate, thus, leases for years, lands held for de- 
cedent from year to year, goods, wares, merchandise. 



296 COMMERCIAL LAW. 

bonds, notes, accounts, money, stock, furniture and 
other species of personal property, all go to the execu- 
tor or administrator. 

A copy in duplicate of the inventory should be made, 
one retained by the executor or administrator and the 
other filed by the court, which has power to enforce 
such filing in case of neglect to do so. 

The value of taking and filing an inventory is ap- 
preciated when it is known that by so doing the execu- 
tor or administrator fixes the prima facie value of the 
estate, and if a dispute arises in the final settlement 
of the account as to the real value of the estate, the 
burden is upon those objecting to the account to show 
that the executor or administrator is wrong. If no in- 
ventory is made, then the executor or administrator 
must prove that he has accounted for everything and 
at the proper value in case of dispute. 

The executor or administrator must collect all debts 
due the estate and in so doing may compromise any 
debt due except if he himself owes it to the estate. The 
executor or administrator must also advertise for all 
claims against the estate and if found proper, pay the 
same. Executors or administrator may sue or be sued 
in their representative capacity. 

Payments of Debts and Legacies. 

After one year from the issuance of the letters testa- 
mentary or of letters of administration, the executor or 
administrator may pay the debts and legacies and dis- 
tribute the residue according to law. In paying the 
debts the following order should be observed. 

1. Debts entitled to a preference under the laws of 
the United States. 

2. Taxes assessed upon the estate of the deceased 
previous to his death. 



PREPARING THE ACCOUNT. 297 

3. Judgments docketed and decrees entered against 
the deceased. 

4. All recognizances, bonds, sealed instruments, 
notes, bills and unliquidated demands and accounts. 

Funeral expenses are not regarded as debts of the 
estate but as expenses of the administration and should 
be paid as soon as possible and before any of the other 
expenses. 

Final Accounting of Executor or Administrator. 

While an executor or administrator may file an in- 
termediate account at any time, should he so desire, 
or should an order of the court be made to that effect, 
the final accounting can be made eighteen months from 
the issuance of letters. Such final accounting may be 
made voluntarily by the executor or administrator, or 
on the petition of some person interested in the estate. 

Due notice is given to all persons interested in the 
estate, either as legatees or creditors, of the accounting 
and all who desire may inspect the accounting and the 
vouchers in support of the expenditures. Vouchers 
should be produced for all sums expended over twenty 
dollars, but all items less than twenty dollars expended, 
when taken together should not exceed five hundred 
dollars, unless supported by vouchers. 

Preparing the Account. 

The account should charge the executor with the 
amount of the inventory and credit him with all legal 
disbursements, payments made to legatees and creditors. 
The easiest method of understanding the preparation 
of an account is to follow a precedent. The follow- 
ing is submitted as an example: 



298 COMMERCIAL LAW. 

SURROGATES' COURT, NEW YORK COUNTY. 



In the Matter of the Judicial 

Settlement of the Account of 

Allen Smith, 

as administrator of 

John Smith, 

Deceased. 



Account of Proceedings. 



TO THE SURROGATES' COURT OF THE COUNTY OF 
NEW YORK.i ; 

I, Allen Smith, of the County of New-York, do render the fol- 
lowing account of my proceedings as executor of John Smith 
deceased: On the twelfth day of March, 1904, Letters of admin- 
istration were issued to me. On the second day of April, 1904, 
I caused an Iriventory of the personal estate of the deceased to 
be filed in this office, which personal estate therein set forth 
amounts, by appraisement by the appraisers duly appointed, to 
$50,000. 

Schedule A, hereto annexed, contains a statement of all the 
property contained in said Inventory, sold by me at public or 
private sale, with the prices and manner of sale; which sales 
were fairly made by me at the best prices that could be had, 
with due diligence, as I then believed; it also contains a state- 
ment of all the debts due the said estate and mentioned in said 
Inventory, which have been collected, and also of all interest or 
moneys received by me for which I am legally accountable. 

Schedule B, hereto annexed, contains a statement of all debts 
in said Inventory mentioned, not collected or collectible by me 
together with the reasons why the same have not been collected 
and are not collectible; and also a statement of the articles of per- 
sonal property mentioned in said Inventory unsold, and the rea- 
sons of the same being unsold, and their appraised value; and 
also a statement of all property mentioned therein lost by acci- 
dent, without any wilful default or negligence, the cause of its 
loss and appraised value. No other assets than those in said In- 
ventory, or herein set forth, have come to my possession or knowl- 
edge, and all the increase or decrease in the value of any assets 
of said deceased is allowed or charged in said Schedules A and B. 
Schedule C, hereto annexed, contains a statement of all 
moneys paid by me for funeral and other necessary expenses for 



FINAL ACCOUNTING. 299 

said estate, together with the reasons and object of such expend- 
itures. 

On or about the'fifth day of April in the year 1904, I caused a 
notice for claimants to present their claims against the said 
estate to me within the period fixed by law, and at a certain place 
therein specified, to be published in two newspapers, according 
to law, for six months pursuant to an order of the Surrogate of 
the County of New York; to which order, notice and due proof 
of publication herew-ith filed, I refer as part of this account. 

Schedule D, hereto annexed, contains a statement of all the 
claims of creditors, presented to and allowed by me or disputed 
by me and for which judgment or decree has been rendered 
against me together with the names of the claimants, the general 
nature of the claim, its amount, and the time of the rendition of 
the judgment; it also contains a statement of all moneys paid 
by me to the creditors of the deceased, and their names, and the 
time of such payment. 

Schedule E, hereto annexed, contains a statement of all 
moneys paid to the legatees, widow, or next of kin of the deceased. 

Schedule F, hereto annexed, contains the names of all per- 
sons entitled as widow, legatee, or next of kin of the deceased, 
to a share of the estate, with their places of residence, degree of 
relationship, and a statement of which of them are minors and 
whether they have any general guardian, and if so, their names 
and places of residence, to the best of my knowledge, informa- 
tion and belief. 

Schedule G, hereto annexed, contains a statement of all other 
facts affecting my administration of said estate, my rights and 
those of others interested therein. 

I charge myself as follows: 

With amount of Inventory $50,000.00 

Increase, as shown by 

Schedule A2, A3, A4 7,940.00 

r ,. .. .7, $57,940.00 

/ credit myself as follows: 

With amount of Loss on sales, as per 

" Schedule B none. 

Debts not collected, as 

per do 750.00 

' Schedule CI, C2 1,515.00 

Schedule D 1,030.00 



300 COMMERCIAL LAW. 

With Schedule E 29,800.00 

$33,095.00 

Leaving a balance of $24,845.00 

to be distributed to those entitled thereto, subject to the deduc 
tions of the amount of my commissions, and the expenses of this 
accounting. The said Schedules, which are severally signed by 
me are part of this account. 

Allen Smith. 
SCHEDULE A. 
To amount as per inventory on file $50,000.00 

Allen Smith. 
SCHEDULE A 2. 

Proceeds of Sales of Bonds owned by John Smith not 

1904. included in Inventory. 

May 10, 200 New England Electric 5% @ 

10.50 $2,100.00 

" 10,10 N.Y. Central 4^% @ 105 1,050.00 
" 16, 5 Union Pacific 4 % @110 550.00 

$3,700.00 

Allen Smith. 

SCHEDULE A 3. 
Collections of Principals on Loans and Mortgages 
owned by Decedent. 
1904. 
June 6, Rec'd payment note of William 

Henry $500.00 

" 14, Rec'd payment mortgage, Sam'l 

O'Connor 1,000.00 

$1,500.00 

Allen Smith. 

SCHEDULE A 4. 
To interest on principal mentioned in inventory and 

money subsequently acquired $2,740.00 

Grand total $57,940.00 

Allen Smith. 
SCHEDULE B. 
Debts due the estate and not collectible. 

Note by William Hobbs for . • $750.00 

Uncollectible on account of death of said William 
Hobbs leaving no property out of which same 

could be paid. 

Allen Smith, 



SCHEDULES OF FINAL ACCOUNTING. 301 

SCHEDULE C 1. v.. 

Funeral Expenses. 

Rev. Dr. John $200.00 

Foral-Florist 75.00 

H. B. Carr, undertaker 500.00 

Newspaper notice 20.00 

$795.00 



Allen Smith, 



SCHEDULE C 2. 
Sundry Expenses. 
Advertising for claims in two newspapers . $100.00 
Alexander Hubbel, professional services in 

probate will, etc 500.00 

Taxesfor 1903 120.00 



$720.00 



Allen Smith. 



SCHEDULE D. 
Sundry Liabilities of Estate Paid. 
1905. 
April 3, Dr. Farley, professional services. $350.00 

" 10, Lenox Stable 200.00 

H. D. Knox & Co., fire insurance 

premiums 75,00 

Hibbard & Son, tailors' bill.. 105.00 



$1,030.00 

Allen Smith. 



SCHEDULE E. 

Dora Smith $10,000.00 

Albert Smith 12,500.00 

Catholic Home 5,000.00 

St. Johns Dispensary 1,500.00 

Herbert St. Alls 500.00 

Mary Jones 300.00 



$29,800.00 



SCHEDULE 

Name. Relationship. 



Allen Smith. 



Dora Smith widow 110 Water St., N.Y.C. 

Albert Smith son 110 Water St., N.Y.C. 

Allen Smith brother 20 Westerly Ave., N.Y.C. 

George Smith nephew 20 Westerly Ave., N.Y,C 

George Smith, being a minor, whose general guardian is Allen 
Smith, with address above stated. 



302 COMMERCIAL LAW. 



In the Matter of the Judicial 

Settlement of the Account of 

Allen Smith, 

as administrator of 

John Smith, 

Deceased. 



COUNTY OF NEW YORK, ss.: 

Allen Smith, of New York County, being duly sworn, says that 
the charges made in the foregoing account of proceedings and 
schedules annexed, for moneys paid by me to creditors, legatees 
and next of kin, and for necessary expenses, are correct; that I 
have charged therein all the interest for moneys received by 
me and embraced in said account, for which I am legally account- 
able; that the moneys stated in said account as collected, were 
all that were collectible, according to the best of my knowledge^ 
information and belief, on the debts stated in such account at the 
time of the settlement thereof; that the allowances in said de- 
crease in value of any assets, and charges therein, for the increase 
in such value, are correctly made; and that I do not know of any 
error in said account or anything omitted therefrom which may 
in any wise prejudice the rights of any party interested in said 
estate. And deponent further says that the sums, under twenty 
dollars, charged in the said account, for which no vouchers or 
other evidences of payment are produced, or for which I may not 
be able to produce vouchers or other evidences of payment, have 
actually been paid and disbursed by me as charged; and that said 
account contains, to the best of my knowledge and belief, a full 
and true statement of all my receipts and disbursements on ac- 
count of the estate of said decedent, and of all money and other 
property belonging to said estate which have come into my hands, 
or which have been received by any other person by my order or 
authority for my use, and that I do not know of any error or 
omission in the account to the prejudice of any creditor of or 
person interested in the estate of the decedent. 

Allen Smith. 
Sworn before me this 20th day} 
of March, 1906. J 

John Doe, 

Notary Public, 

N. Y. Cov.nty. 



commissions allowed. 303 

Commissions and Expenses Allowed in Administer- 
ing THE Estate. 

It is certainly reasonable to suppose that one who de- 
votes his time and attention to administering the estate 
should receive some compensation for so doing. Some- 
times the will provides a specific compensation to be 
paid to the executor, but more often no mention is made 
of this matter. The compensation is therefore fixed by 
law. In N"ew York State the following law fixes the 
commissions : 

On the settlement of the account of an executor or 
administrator, the Surrogate must allow to him for his 
services, and if there be more than one, apportion 
among them according to the services rendered by them 
respectively, over and above his or their expenses : 

For receiving and paying out all sums of money not 
exceeding one thousand dollars, at the rate of five per 
centum. 

For receiving or paying out any additional sums not 
amounting to more than ten thousand dollars, at the 
rate of two and one half per centum. 

For all sums above eleven thousand dollars, at the 
rate of one per centum. 

In all cases such allowance must be made for their 
necessary expenses actually paid by them as appears 
just and reasonable. 

If the value of the personal property of the decedent 
amounts to one hundred thousand dollars or more, over 
all his debts, each executor or administrator is entitled 
to the full compensation on principal and income al- 
lowed herein to a sole executor or administrator, unless 
there are more than three, in which case the compensa- 
tion to which three would be entitled must be appor- 



304 COMMERCIAL LAW. 

tioned among them according to the services rendered 
by them, respectively, and a like apportionment shall 
be made in all cases where there shall be more than one 
executor or administrator. 

Where the will provides a specific compensation to 
an executor or administrator, he is not entitled to any 
allowance for his services, unless by a written instru- 
ment filed with the Surrogate, he renounces the specific 
compensation. 

Where successive or different letters are issued to the 
same person on the estate of the same decedent, includ- 
ing a case where letters testamentary or letters of 
general administration are issued to a person who has 
been previously appointed a temporary administrator, 
he is entitled to compensation in one capacity only, at 
his election, except that where he has received com- 
pensation in one capacity, he is entitled to the excess, 
if any, of the compensation allowed by law, above the 
sum which he has already received in the other capacity. 

The commissions as above set forth cannot be paid 
or retained until judicially allowed. This is done in 
the final decree of the court allowing the account as 
rendered (or if there is a contest of the account, allow- 
ing it as finally determined) fixing and settling the 
amount to be distributed among those entitled to share 
in the residue of the estate and discharging the executor 
or administrator from all further liability. 

PEACTICAL QUESTIONS ON ESTATE OF 
DECEASED PEKSOIstS. 

1. The administrator of an estate puts $1,000 of 
money belonging to the estate in a bank, together with 
$1,000 of his own money. Whole was credited to him 
personally. No question but that he acted in good faith. 



PILA.CTICAL QUESTIONS — ESTATES PERSONS DECEASED 305 

Bank fails. On whom does the loss of estate's $1,000 
fall? 

2. What is the source of authority of (a) executorS;. 
(b) administrators ? 

3. What is an " administrator with the will an- 
nexed"? 

4. Must an executor pay legacies at once? If not, 
what are his duties with respect to the time of payment 
of legacies ? 

5. What is the Statute of Distribution? 

6. A makes his will, appointing an executor. A dies 
and the executor dies before entering upon his duties. 
What should be done? 

7. A dies, leaving a will, but naming no executor 
therein. Is the will valid? How would it be carried 
into effect if valid? 

8. A makes a will, devising his house and lot to his 
son John, and the residue of his property to his daugh- 
ter Jane. Later he sells the house and lot for cash, 
which he deposits in a bank separate from his other 
money, and leaves it intact. A few days later he dies. 
To whom does the cash belong? 

9. WTien A was twenty- three years of age he made 
a will leaving all his property both personal and real, 
to B his step-brother. Sixty-two years after, A died, 
liaving remained a bachelor all his life. The descen- 
dants of B are trying to probate the will — but are 
opposed by the relatives of A who claim they should 
'be entitled to take as if A had died intestate, and that 
the will being made so many years before could not 
stand. Which contention is correct? Why? 

10. If a person does not dispose of his property by 
"will, and dies, what becomes of it? 



306 COMMERCIAL LAW. 

11. What are the advantages of making a will, if one 
is not satisfied with the disposition of property made 
by law? 

12. A made a will leaving all his property to X and 
Y his two children, his wife being dead. The will was 
properly executed and witnessed by three witnesses C, 
D and E. The will was kept with a number of other 
papers in a wooden box. Several years thereafter A's 
residence caught on fire, the house was destroyed, his 
will burned and he lost his life. The witnesses to the 
will are still alive. Can the will be admitted to pro- 
bate? 

13. What are the various things that should be done 
in order to insure the proper execution of a will? 

14. Why should a relative or a legatee not act as a 
witness ? 

15. Must a will be in the handwriting of the test- 
ator? 

16. What are some of the important duties of ex- 
cutors and administrators? 

17. Smith made a will designating Jones as ex- 
ecutor without having first ascertained if he is willing 
to act as such. After Smith dies Jones refuses to act as 
execu.tor. What should be done in the matter? 

18. If a Testator owns real estate on which there is 
a mortgage, and this mortgage is foreclosed, and on the 
sale there is a surplus, is this surplus to be regarded by 
the executor as real estate or personal property? 

19. A is a member of the firm of A and B, engaged 
in the dry goods business. A dies intestate leaving 
considerable property. There are personal creditors, 
as well as creditors of the partnership. There are not 
sufficient assets of the partnership to pay all the firm's 
creditors. 



PEACTICAL QUESTIONS ESTATES PERSONS DECEASED 307 

Can the firm creditors look to A's estate to satisfy 
their claims ? If so, do they take preference to personal 
creditors ? 

20. Why does an executor or an administrator have to 
account? Who may object to the account? 



CHAPTER XX. 

LANDLOED AND TENANT. 

How THE Eelationship is Created. 

In the exercise of dominion over his real property, 
the owner may have actual possession of the premises, 
or he may permit another person to occupy them. This 
other person, who is in possession and occupation under 
the owner's title is termed the tenant or lessee. The 
one whose lands are occupied and who owns the prem- 
ises is called the landlord or lessor. The usual mode 
of creating the relationship of landlord and tenant is 
by an express contract termed a lease. 

The Lease. 

A lease is a contract between lessor and lessee for the 
possession and profits of lands and tenements on the 
one hand, and a recompense by rent or other considera- 
tion on the other. The lease may be for life, for years, 
from year to year or at will. A lease or demise is a 
grant of the exclusive possession of the thing in ques- 
tion for a definite time. It must be distinguished from 
a license, which is a permission to use a particular thing 
for a particular purpose and on a particular occasion. 

There is no special form of words necessary to con- 
stitute a lease. It is essential in order to consummate 



for:m of lease. 309 

the contract that there be a lessor, able to grant the 
land; a lessee capable of accepting the grant; and a 
subject matter capable of being granted. 

In Xew York and many of the states, the lease, if 
it is for a term longer than one year, must be in writing. 
The lease should be signed by the lessor, but it is usual 
that both lessor and lessee sign it. Should the lease 
be executed by an agent he should do so in the name 
of the lessor so as to make it the landlord's act and 
deed. This is very important for many leases have be- 
come inoperative because of defective execution. The 
form of signature should be " John Black, by William 
Eoe, Agent." 

In the example given, if William Eoe the agent 
should make the lease in his own name, though he add 
also " by virtue of the letter of attorney to me made for 
that purpose,*' such lease would seem to be void, 
because the indenture being made in his name must 
pass the interest and lease from him, or it can pass it 
from nobody: it cannot pass it from the principal im- 
mediately because he is no party, and it cannot pass it 
from the attorney at all because he has nothing in the 
lands; and then his adding "by virtue of the letter of 
attorney " will not help it, because the letter of attorney 
made over no estate or interest in the land to him, and 
consequently he cannot by virtue thereof convey over 
any to another. 

The usual form of lease is as follows: 

THIS INDENTURE, made the tenth day of May, one thou- 
sand nine hundred and six, Between James Smith, of the Borough 
of Manhattan, City and State of New York, party of the first 
part, and Albert Roe, of the same place, party of the second 
part, Witnesseth, That the said party of the first part has letten 
and by these presents does grant, demise, and to farm let, unto 
the said party of the second part, the following premises, to wit: 



310 COMMERCIAL LAW. 

The lot or parcel of land with the building thereon, lying and 
being in the City of New York and known and designated as 
premises No. 150 Greenwich Street, New York City, with the 
appurtenances, for the term of three years, beginning from the 
tenth day of May, one thousand nine hundred six at the yearly 
rent or sum of twelve hundred dollars, to be paid in equal quart- 
erly payments of $300 each. And it is agreed that if any rent 
shall be due and unpaid, or if default shall be made in any of the 
covenants herein contained, then it shall be lawful for the said 
party of the first part to re-enter the said premises and to remove 
all persons therefrom. And the said party of the second part 
does hereby covenant to pay to the said party of the first part 
the said yearly rent as herein specified. 

And at the expiration of the said term, the said party of the 
second part, will quit and surrender the premises hereby de- 
mised, in as good state and condition as reasonable use and wear 
thereof will permit, damages by the elements excepted. 

And the said party of the first part, does covenant that the said 
party of the second part, on paying the said yearly rent, and 
performing the covenant aforesaid, shall and may peaceably and 
quietly have, hold and enjoy the said demised premises for the 
term aforesaid. 

Witness the hands and seals of the said parties, the day and 
year first above written. 

James Smith [seal] 

In presence of Albert Roe [seal] 

John Cole. 

State of New York 
County of New York 

On the tenth day of May in the year one thousand nine hun- 
dred and six before me personally came James Smith and Albert 
Roe, to me known, and known to me to be the individuals de- 
scribed in, and who executed the foregoing instrument, and who 
severally duly acknowledged that they executed the same. 

John Cole, 

Notary Public, 

New York County. 

GUARANTY ACCOMPANYING ABOVE LEASE. 

In Consideration of the letting of the premises within men- 
tioned to the within named Albert Roe and the sum of one dollar 
to me paid by the said party of the first part, I, Andrew Drake, 



RIGHTS OF THE LANDLORD. 311 

do hereby covenant and agree, to and with the party of the first 
part above named, and his legal representatives, that if default 
shall at any time be made by the said Albert Roe in the payment 
of the rent and performance of the covenants contained in the 
within lease on his part to be paid and performed, that I will 
well jand [truly |pay the said rent, or any arrears thereof, that 
may remain due unto the said party of the first part, and also 
all damages that may arise in consequence of the non-perform- 
ance of said covenants, or either of them, without requiring 
notice of any such default from the said party of the first part. 
Witness my hand and seal this tenth day of May in the year 
one thousand nine hundred and six. 

Andrew Drake. 
Witness. 

John Cole. 

What May Be Leased. 

It is a general rule that anything corporeal or in- 
corporeal may be the subject of the lease^, and therefore 
not only lands, but ways, fisheries, rent charges and all 
other incorporeal hereditaments are included in the 
common law rule. It is common to include in a lease 
of real estate, certain articles of personal property, as 
sheep, cows, horses and other live-stock, as well as farm- 
ing implements, or of household furniture, or other 
chatties in the house. 

Where the household furniture is included in the 
lease, it is usual to make a schedule of the furniture, 
and by the terms of the lease make such schedule a 
part thereof with an agreement for the redelivery of 
the furniture with the house at the end of the term. 

Eights of the Landlord. 

Certain rights with respect to the property leased 
remain in the landlord, because of his reversionary es- 
tate therein. These rights are irrespective of the cov- 
enants contained in the lease. The landlord may enter 
the leased property for the purpose of collecting or de- 



312 COMMERCIAL LAW. 

manding his rent, or for the purpose of making repairs 
so as to prevent the waste of his property and with 
these exceptions he has no right to disturb the tenant's 
possession during the existence of the term. 

After the term has expired the landlord may re-enter 
and recover his premises. If the tenant refuses to give 
up the possession the landlord cannot forcibly turn the 
tenant and his family out but must bring an action in 
ejectment. 

The landlord has a right to be paid the rent fixed in 
the lease, or when no rental has been determined upon, 
the reasonable worth of the premises. Where the ten- 
ant defaults in the pa3TXLent of rent, the landlord may 
recover possession of the premises, and different remedies 
are provided by statute for that purpose. A reference 
must be made to the state statute to ascertain the pro- 
ceedings in such cases. 

Eights or the Tenant. 

The most important right of the tenant as against 
his landlord is that he should have peaceable and quiet 
enjoyment in, and possession of, the property leased 
to him. This right the law presumes as attaching to 
every tenancy, whether there be an expressed covenant 
for quiet enjoyment inserted in the lease or not. This 
only applies to acts, disturbances, or evictions caused 
by himself or some one with title paramount, and not 
as against acts of strangers who in no way claim title 
under him. The tenant also has the right to make 
alterations to adapt the premises to the purpose for 
which they were hired. As to what alterations may be 
made is generally determined by the usage and custom 
of the place. In the use of the premises the tenant 
may put up signs on the outside of the building unless 



RIGHT OF TENANT TO REMOVE FIXTURES. 313 

it is specially stipulated in the lease that he should 
not do so. The only limitation being that the tenant 
does not injure the building or obstruct the public high- 
way nor offend the public taste by unseemly exhibitions 
or otherwise violate the law. 

Eight of the Tenant to Eemove Fixtures. 

As the interest of the tenant in the land is temporary, 
the law presumes that any fixtures he may install in the 
premises is with a view to the better enjoyment of the 
same and not for the purpose of increasing the value of 
the landlord's property. The tenant therefore is per- 
mitted to detach such annexations to the premises made 
by him if he does so before his term expires and with- 
out material injury to the landlord's estate. 

The tenant may remove articles of personal property 
annexed by him to the freehold where they were put up 
for the purpose of trade or business in which he was 
engaged, or even if the personal property so annexed 
was for the purpose of ornamenting the premises or 
making them more convenient for his own use. 

The tenant may remove articles such as engines, pans, 
boilers, etc., procured by him for the purpose of his 
trade, which he is authorized by the landlord to in- 
troduce into the premises. They are trade fixtures and 
though affixed to the land are removable during or at 
the expiration of the term. 

PEACTICAL QUESTION'S ON LANDLOED AND 
TENANT. 

1. A, a landlord, leased to B for a term of three 
years the store and basement on the corner of X Avenue 
and Fifth Street. The lease was in writing, but through 
some inadvertence the rent was omitted. 

(a) Is the lease good? 



314 COMMERCIAL LAW. 

(b) What rent, if any, should B pay? 

2. The M corporation by an oral lease rented part of 
its office building to Smith, lease to begin January 12, 
1905, and run until March 12, 1906, at a rental of 
$2400. to be paid in monthly installments of $100. on 
the first of each month. Smith occupied the rooms 
for three months and then moved out without having 
paid any rent. What are the rights of the parties? 

3. B entered into occupation of a house under the 
terms of a written lease, which contains no provision 
as to making repairs. The ceiling in dining room 
falls down and renders the room unfit for use. A, the 
landlord, refuses to repair the ceiling. What are B's 
rights in the matter irrespective of any statutory regu- 
lations on the subject? 

4. B has a written lease for two years, of a lot 50 feet 
by 1^0 feet, on which is erected a small shanty which 
is used as a cigar store. Six months before the term of 
the lease ends, his landlord erects another shanty on a 
vacant part of the 50 by 100 foot lot leased to B. B 
therefore refuses to pay any more rent but still main- 
tains possession of his shanty. What are the rights of 
the parties? 

5. After a sheriff had levied upon property of a 
tenant situate on the demised premises, and had taken 
possession of such premises, the landlord instituted 
summary proceedings for the recovery of the premises, 
and obtained judgment therein, and a "W'arrant was 
issued directing the marshal to remove all persons in 
possession thereof, including the sheriff. The represent- 
ative of the sheriff having refused to surrender posses- 
sion, the attorney for the landlord demanded possession 
from the sheriff, who said that he could not get out, 
and, upon being then told that the attorney would hold 



PKACTICAL QUESTIONS ON LANDLORD AND TENANT. 315 

him liable for the use of the premises as long as he 
stayed there, replied : " Now, don't get in a stew : you 
will get your pay : I am not going to get out." There- 
upon the landlord served upon the sheriff a notice, recit- 
ing the result of the summary proceeding, and stating 
that he would hold the sheriff liable for use and 
occupation from a certain date at a specified rental, 
unless the premises were vacated immediately. Was 
the relationship of landlord and tenant created? Is 
the sheriff liable for the rent? 

6. A entered into an agreement with B to lease to 
him a farm for a period of three years. Thereafter the 
proposed lessor of the farm gave notice to the lessee 
under the contract that he could not have the farm. 
What are the rights of the parties? 

7. A lease was dated March 1st, 1906, to take effect 
on May 1st, 1906, and run for a period of three years 
thereafter. The lessor before the day on which the 
tenant was to take possession, removed certain fixtures 
that were on the premises. The lessee thereupon re- 
fused to enter into possession. What are the rights of 
the parties? 

8. The wall of a leased building depended for sup- 
port upon the wall of an adjoining building owned by 
the same landlord. The landlord tore down the ad- 
joining wall and so endangered the leased building that 
it was condemned by the Building Department, and 
the tenant was compelled to vacate the premises. Has 
the tenant a claim against the landlord? 

9. A tenant just prior to the completion of his ten- 
ancy removed certain fixtures put in by himself during 
the time of possession. The landlord entered upon 
the premises before the termination of possession and 
detained the fixtures. Can he do so? 



316 COMMERCIAL LAW. 

10. There was a stipulation in a lease that at no 
time should the lessee sell or offer to sell intoxicating 
liquors on the premises. The tenant sold intoxicating 
liquors contrary to the terms of the lease. What are 
the rights of the landlord? 

11. For a great many years A has been a tenant ot 
a piece of property for which originally a lease was 
issued to him running from May 1 to April 30. Na 
written renewal of this lease was ever given; however, 
the tenant continued to occupy the property and paid 
the rent regularly in advance on the first of each month. 
He now proposes to vacate the property on the 1st ot 
January, and not to pay any rent after that date. 
Unfortunately, the original lease cannot be found. Can 
he be held to pay rent till the 1st of May? Has he the 
right to vacate the property at the expiration of any 
month, since he paid the rent monthly? 

12. A agrees, through a broker, B, to rent to C 
certain premises from the first of February, 1904, 
and has leases drawn up and signed, and sends them 
through B to C. At C's request they are left for in- 
spection. B calls two or three times to get the signed 
copy due A, but is put off for different reasons. A 
week after the signing and delivery of the lease forms 
C goes into the hands of a receiver. Application is 
made to the receiver for the forms signed by A, but he 
refuses to give them up, and notifies A that if the 
premises are rented to other parties he will hold A re- 
sponsible. No money consideration of any kind has 
passed between the parties A and C. Has either C or 
the receiver any legal standing, and does A take any 
risk in renting the premises to other parties? 



CHAPTER XXI. 

MECHANIC'S hmN. 

Definition and Object. 

A mechanic's lien has been defined as a special statu- 
tory lien on buildings and other improvements upon 
realty and the land on which they are situated, in favor 
of certain designated classes of persons, to secure to 
them compensation for the work and labor which they 
have performed in, or the materials which they have 
furnished for, the construction, and in many jurisdic- 
tions, the repair or alteration of such building or im- 
provment. 

The object of the law creating a mechanic's lien was 
to protect and favor mechanics and laborers who worked 
on buildings, and by such work and material furnished 
have given added value to the property upon which they 
have been expended, and that it was unjust for the 
owner of the land who has contracted for such improve- 
ment to have the benefit of such expenditures without 
making compensation therefor. The lien is purely a 
creation of the statute, and it therefore follows, that 
the person who is seeking to enforce the lien must show 
that he comes within the scope of the statute, and that 
the property upon which the lien is claimed is such as 



318 COMMEECIAL LAW. 

was intended by the legislature in the enactment of the 
statute. Every state in the Union has passed such a 
statute. It is in effect an encumbrance upon the prop- 
erty, and in its nature it is a right to charge the prop- 
erty it affects with the payment of a particular debt 
in preference and priority to other debts so far as the 
statute confers such preference, and no personal claim 
is made against the owner. 

Property Subject to the Lien. 

In general a mechanic's lien attaches to the building 
or improvement upon, or for which labor is performed 
or material furnished, and also to the land upon which 
such building or improvement is situated, and it is very 
necessary in order to maintain the lien against a partic- 
ular piece of land, that the building or improvement, 
on account of which the lien is claimed should be situ- 
ated on such land, and such a lien extends to the whole 
of such building or structure, and cannot be confined 
to the particular portion thereof into which the 
mechanic's labor and materials have gone. 

Priority Between Mechanics' Liens and other En- 
cumbrances. 
A mechanic's lien takes precedence according to the 
time when it is attached to the property, being pre- 
ferred to all other encumbrances, which have been 
placed thereon subsequent to that time, but not as to 
encumbrances previously existing. This preference 
is absolutely dependent upon the complete compliance 
with the statutory requirements for the acquisition, 
perfection, and preservation of the lien. 

How THE Lien is Perfected. 

The law creating the lien provides what steps shall be 
taken to secure or perfect the lien granted, and a strict 



CONTRACTS, SUB-CONTRACTS AND MATERIALMEN. 319 

compliance is necessary. While the different steps in 
the various jurisdictions may not all coincide, the 
general formal requisites are as follows: 

First. The person claiming a lien shall notify the 
o\\Tier of his claim and intention to enforce a lien. 

Second. In a few states the statute requires a demand 
for a payment to be made upon the debtor as a condition 
precedent to the institution of proceedings to establish 
and enforce the lien. 

Third. That a statement of the claim shall be filed 
or recorded at a designated place and within a desig- 
nated time. 

Contractors, Sub-Contractors and Materialmen. 

With respect to the application of the mechanic's 
lien laws, the law recognizes and makes a distinction 
between contractors, sub-contractors, and materialmen. 

To make one a contractor it is not necessary that he 
should have a contract for the entire work of construct- 
ing the building, as the owner may enter into several 
original contracts for the different kind of work in- 
volved in the construction, and each one with whom he 
contracts is called a contractor. 

A sub-contractor, on the other hand, makes his con- 
tract with the contractor for the doing of certain work 
necessary to be done under the original contract made 
between the owner and the contractor. Unless the law 
expressly permits the so doing, the sub-contractor can 
not place a lien on the property. 

A materialman is one who merely furnishes material 
to be used in building without performing work thereon. 
He is neither a contractor nor a sub-contractor, and can- 
not avail himself of the benefits of the lien law. 

Where a contract made directly with the owner of a 
building involves both the furnishing of materials and 



320 COMMERCIAL LAW. 

the putting them in place, the main consideration, in 
determining whether the person with whom such con- 
tract is made is to he considered a materialman or an 
original contractor within the meaning of the 
mechanic's-lien law, is whether the labor bestowed upon 
the article or articles in putting them in place upon the 
building is trilling or considerable in comparison to the 
price of the article furnished. 

Enforcement of the Lien. — Lis Pendens. 

This is a notice of the pendency of an action and 
its eifect is to continue the lien until linal judgment 
is obtained in an action brought to establish the 
validity of the lien. Of course, the different steps to 
be taken in the enforcement of the lien will depend up- 
on the statutory procedure of the respective states in 
which the same is sought to be enforced. 

The following form of Lis Pendens is in compliance 
with the New York Mechanic's Lien Law: 

NOTICE UNDER "THE LIEN LAW." 
To John Doel, Esquire, Clerk of the County of New York: 

Please take Notice, That I, William Brown, have a lien 
and claim for the principal and interest of the value, and the 
agreed price, of the labor and materials hereinafter mentioned, 
upon the real property improved and to be improved, and upon 
such improvement hereinafter described, pursuant to the 
provisions (Article I) of an act of the Legislature of the state of 
New York, entitled, '' An Act in relation to Liens, constituting 
Chapter 49 of the General Laws,' ' being Chapter 418 of the Laws 
of 1897, and I do hereby state that: 

1. The name and residence of the lineor is WilHam Brown, 
residing at 175 Seventh Ave., Borough of Manhattan, City and 
County of New York. 

2. The name of the owner of the real property against whose 
interest therein a lien is claimed is Stephen J. Mitchell and the 
interest of the said owner as far as known to the lienor is that 
of owner in fee of the premises below described. 



NOTICE UNDER THE LIEN LAW. 



321 



3. The name of the person by whom the henor was employed, 
and to whom he furnished and was to furnish materials is Stephen 
J. Mitchell, and the contract to furnish the materials and do 
the work was made with the said Stephen J. Mitchell. 

4. The labor performed and to be performed, and the materials 
furnished and to be furnished, are as follows: To furnish all 
materials, suppUes and fixtures and value necessary to install 
a complete steam heat plant, including two boilers, steam pipes, 
radiators, etc. and the agreed price and value thereof is Five 
Thousand Dollars. 

5. The amount unpaid to the lienor is Five Thousand Dollars. 

6. The time when the first and last items of work were per- 
formed and material furnished, is the following; work com- 
menced January 10, 1906, and completed May 5, 1906. 

7. The property subject to the lien is known as premises 
No. 8 East 120th Street, N. Y. City, and a description suflScient 
for indentification, and its location is as follows: It is situ- 
ated in the Borough of Manhattan, N. Y. City on the south 
side of 120th Street, 100 feet and 3 inches east of Fifth Ave, 
being 25 feet and 10 inches wide front and rear, by 100 feet and 
no inches deep on each side, and known as Number 8 East 
120th Street and shown on the following diagram: 



_l 



l_ 



120th Street. 



■100 ft, 3 in — 25ft. lOin. 



119th Street. 



n 



I I 



William Brown. 



Dated, May 15, 1906. 



322 COMMERCIAL LAW. 



State of New York,) ^^. 
County of New York.) 

William Brown being duly sworn, says that he is the claimant, 
the lienor mentioned in the foregoing notice of lien, that|he has 
read the said notice and knows the contents thereof |and that the 
statements therein contained are true to his knowledge except 
as to the matter therein stated to be alleged on information and 
belief, and that as to those matters he believes^it|to'^be true. 
Sworn^before me, this 15thl 
day of May, 1906. J 

Alexander Hobbs, 

Notary Public, 

N. Y. Co. 

PEACTICAL QUESTIONS ON MECHANICS' 
LIENS. 

1. B, a mason builder, was employed by the Hoff- 
man Hotel to add a wing to their main building. This 
wing was to be used as a restaurant and the mason work 
was to be finished in eight months from date of the 
contract. The payment for the work was to be made 
on completion of the same. B performed his part of 
the contract within the specified time, but the Hotel 
proprietor failed to pay the sum due. B now claims a 
lien on the entire property, though he had nothing at 
all to do with erecting the main building. Is his claim 
well founded? 

2. The Jones Lumber Company furnished the lum- 
ber to be used in completing a building. Pajrtnent for 
the lumber was to be made on the delivery of the same. 
The building has not progressed far enough for the 
lumber to be used. The owner fails to pay the com- 
pany as per contract. Can the Jones Lumber Com- 
pany claim a lien on the unfinished building? 

3. A contract imposed upon a builder the duty of 
removing rock from the surface of the land, prepar- 
atory to laying the foundation walls. To remove the 



PRACTICAL QUESTIONS ON MECHANICS' LIENS. 323 

rock, the builder used powder and fuses in blasting. 
Can he secure a mechanic's lien? 

4. B, an architect, was engaged to draw a set cf plans 
and specifications for the erection of a ten story build- 
ing. He was to see that the plans complied in every 
respect with the building regulations of the municipal- 
ity. B was to be paid 20 days after the final inspection 
approval of the building by the proper authorities. B 
acted as general superintendent during the construction. 
More than 20 days have passed and the owner has failed 
to pay B. Has he acquired a mechanic's lien on the 
building ? 

Suppose B had not superintended the construction 
but had only drawn the plans, would that change your 
answer any? 

5. The Building Construction Company gave E a 
mortgage to secure advances made on a building under 
construction. The mortgage was recorded May 1, 1906. 
Smith, a plumber, furnished work and material for the 
same building beginning on January 3, 1906, and con- 
tinuing to April 30, 1906. On May 3, 1906, Smith 
filed his mechanic's lien. As between Smith and B 
whose claim is entitled to priority? 



324 



COMMERCIAL LAW. 



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COMMERCIAL LAW. 



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COMMERCIAL- LAW. 





•XOV^XKEOO iO aOHVHOSia 



QUESTIONS FOR GENERAL REVIEW. 



1. Draw up and show execution of a paper by which 
you are empowered to make and indorse commercial 
paper for the iirm of Brown & Co., consisting of Eobert 
Brown, Walter T. Ailing and John Embler of Buffalo. 
What is such a document called? 

2. A bought a horse of B for $100, on B's false 
representation that he was " a good horse and easily 
worth the money." Can A rescind or recover damages 
on the ground of fraud ? State the law applicable to the 
case. 

3. C owes D $100 which is overdue. C admits the 
debt, but says he cannot pay it. D offers to accept $60 
in full pa3riiient and C pays him $60. Would this pay- 
ment bar an action by D to recover $40 from C ? State 
the principle involved. 

4. E, seeing a piece of antique furniture in the rooms 
of a dealer, asks the price and the dealer says $50. B 
understanding him to say $15, says " Send it up." The 
piece is delivered at E's house and at the end of the 
month a bill is sent for $50. Is there a contract of 
sale? Wliy? 

5. A carrier contracts to deliver certain goods at 
a certain city on or before a day stated or to deduct 10 
cents a hundred from the rate for every day over time. 
He fails to deliver on time, on account of damage done 
by a freshet. Is he liable for breach of contract and, if 
so, to what extent? State the principle. 

6. What is the effect of the holder procuring the 
certification of the following check? 



332 COMMERCIAL LAW. 






'^^i^_(gif J:^a -/^^2. 



J!toaiiJV\^Mm_BANK 



f.v<j/^ 










The check has the following indorsements : 

Wm. E. Carpenter 
James Cornell 



7. If A has a farm which he offers to sell B for a 
$3,000 mortgage, which B holds on another place, and 
represents to him that his, A's, farm is worth $3,500, 
and B, who lives two miles distant, relying on A's 
representations, makes the deal, and afterwards dis- 
covers A's farm is only worth $2,500, and tries to get 
out of his bargain, can he do it? 

8. A is the Ijona fide holder, by delivery in due 
course, of a promissory note for $500 signed by B and 
made payable to C or bearer. It turns out that the note 
was made for $200 and so delivered to C, but was altered 
to $500 before delivery to A and the alteration was un- 
known to A. x\ll the parties live in the same place. 
Show how the parties mentioned are effected. 

9. Write out in correct form a negotiable instrument. 

10. Of the promissory notes suggested in the follow- 
ing characteristic list, indicate those that are negotiable^, 
and state why the others are not negotiable: (a) pay- 
able to bearer, (6) payable when the owner reaches the 
age of 30 years, (c) payable in goods at my store, {d) 
payable on demand, (e) payable one day after death, 



QUESTIONS FOR GENERAL REVIEW. 333 

(/) payable when payee marries, (g) payable when 
payee completes the building on my land according to 
contract. 

11. Dobbins gave this guaranty: 

^Or \t)alU€ IRCCCiVCD, the receipt whereof is hereby acknowl- 
edged, the undersigned does hereby guaranty to Jordan, Marsh & Co. 
the prompt payment by George £. Moore to Jordan, Marsh & Co., 
on maturity, of all sums of money and debts which he may hereafter 
owe Jordan, Marsh & Co. for merchandise, which they may from 
time to time sell to him, whether such debts be on book accounJ, 
by note, draft or otherwise, and also any and all renewals of any such 
debt. The undersigned shall not be compelled to pay on this guaranty 
a sum exceeding $1,000, but this guaranty shall be a continuing 
c|uaranty, and apply to and be available to said Jordan, Marsh & Co 
for all sales of merchandise they may make to said George E. Moore, 
until written notice shall have been given by the undersigned to said 
Jordan, Marsh & Co. and received by them, that it shall not apply at 
future purchases. Notice of the acceptance of th s guaranty and of 
sales under the same, and demand upon said George E. Moore for 
payment, and notice to mc of non-payment, are hereby waived. 

Witness my hand, seal, this 20th day June, 1879. 



WILLIAM DOBBINS 



Seal 



Dobbins, who made this guaranty, and who lived in 
a distant city, died soon after signing it, and after his 
death Jordan, Marsh & Co., who were ignorant of his 
death, sold goods to Moore. Xo notice as required in 
the guaranty had been given Jordan, Marsh & Co. 
Could they succeed in an action brought on the guar- 
anty? 

12. A owes B $500. B needs the money and demands 
it from A. A refuses, but agrees that if B will extend 
the time of payment of a note of A's held by B for 6 
months he (A) will pay the $500 then and there. B 
agrees and takes the $500, but at the date of maturity 
of the note refused to extend the time of pa3rment, and 
now consults you as to his rights. Will he be legally 
justified in bringing suit on this note? 



334 COMMERCIAL LAW. 

13. A agrees to buy the growing crops of B, a tobacco 
planter, the same to be well cured in good condition. 
B sends the tobacco to A who refuses to take it, claiming 
that some of it is an inferior grade. What are the rights 
of B? 

14. 

Eosanna E. Fish signed a bond, the material part of 
which reads as follows: 

"WHEREAS, the above bounden Frank M. Scott, is abou 
to act as bookkeeper and collector for the above-named Andrew^ H 
Kellogg, and by reason thereof will have the control of sums of 
money, and be required to perform various acts: Nov^, the condition 
of this obligation is that if the above bounden Frank M. Scott shall 
well and truly account for, and pay over and dispose of all moneys 
and property of the said Andrew H. Kellogg which may come into 
his possession or under his control, and shall well and truly discharge 
and perform all his duties as such bookkeeper and collector, and if 
the said obligors, or either of them, shall pay over to the said Andrew 
H. Kellogg the sum and amount of any and all loss, damages, costs, 
and expenses suffered or incurred by the said Andrew H. Kellogg by 
reason of the failure of said Frank M. Scott to pay over and account 
for all moneys and property, or his failure to discharge and perform 
all his duties as aforesaid, within ten days after notice is given to the 
said Rosanna E. Fish of the sum and amount so to be paid, then this 
obligation to be void," etc. 

Scott entered on his duties and soon after he was given the 
additional duties of cashier. He defaulted. 

Can the bond be enforced? 

15. J is the holder of the following instrument: 



i 






y^;<^^<^;<g^^:^^ jy. S\srcft(Zr JL-^ 



Jr^/evcn J/T7T7£7rect 



ya^/l:TSiJHaliOziA2 SaaJC 






In May, 1895, the holder commences an action 
against Wm. Wallace and George T. Snyder, Individ- 



QUESTIONS FOR GENERAL REVIEW. 335 

ually. Has he brought the suit against the proper 
parties? Give your reason. 

16. A sent an order for 100 bbls., of salt, F. 0. B. 
on 20 days' credit to B, A to pay the freight. B not 
having 100 bbls. in stock and having only 99 bbls. sent 
them to A, 10 days' credit. This time of credit had 
always been customary with B, and A knew of it. 
B sent a bill to A for the 99 bbls. on 10 days' credit. 
Goods were destroyed in transit. Upon whom falls the 
loss? 

17. A telegraphed B asking the latter the price at 
which he would furnish 5,000 sacks of grits, and B, 
intending to fix the price at 6%, sent a message in 
which, by mistake of the telegraph company, the price 
named was 6.34, whereupon A answered that he would 
take 2,000 sacks at 6.34. B replied by letter that " we 
have your order for 2,000 sacks and will let you have 
them at our price 6%." B afterwards, being aware of 
the mistake, sent the goods at 6.34. Can he recover 
from the telegraph company the difference in price? 

18. A, the payee on a promissory note, indorsed the 
same as follows: 



"In case this note is not paid at maturity and before A's 
death, then the maker should use the proceeds of the note to 
pay A's funeral expenses and erect a monument over his grave." 



A died before the maturity of the note and B, the maker, 
paid A's funeral expenses and erected a monument, 
using up all the money which was due on the note. 
Thereafter the administrator of A sued B to recover on 
the note. Can he do so? Why? 



336 COMMERCIAL LAW. 

19. 

Chicago f January t, t886* 
"We hereby guaranty the payment to Mr. William 
J. Rotch of a dividend of 6 per cent, per annum on stock 
subscribed to this day in the corporation of French, 
Potter & Wilson." 

T. J. FRENCH 
WM^ POTTER 
L* D* WILSON 

This guaranty was given to induce Eotch to take the 
above stock. The dividends were regularly paid until 
the death of Eotch, when they ceased. The executor 
of Eotch's estate then brought an action on the guar- 
anty. Can the executor recover? 

20. A ordered of B 25 barrels of lime which he 
wished to use by September 6th, and so informed B. B 
did not place the lime on the car until September 12th, 
and after he had loaded it he received a letter from A 
countermanding the order. B could have recalled the 
shipment any time within twenty-four hours after re- 
ceiving the letter from A, but did not do so. B did not 
send A the bill of lading, having kept it, as he said, 
until he could "see what was going to happen." Was 
there a sale? 

21. A contract was entered into whereby A furnishes 
sweet corn to B for the purpose of planting a certain 
acreage of corn, and B agrees to deliver at the ware- 
house of A the entire portion of the crop which comes 
up to a certain standard at a certain price fixed. When 
does the title pass? 

22. A and B lend money to C for business purposes 
ander a written agreement that they shall share in the 



QUESTIONS FOR GENERAL REVIEW. 3;37 

profits, but do not hold themselves out as partners nor 
do they participate in the management of the business 
of the borrower. C uses the words " and company ^' 
after his name. Are A and B partners of C? 
23. 



Xndiana. J^ational J^ftTLjCl. 



JTz^T^eerv 7?l<tttSa7zdL 







The Indiana jS'ational Bank discounted this draft 
for Brigham Bros, on the strength of the following 
guaranty which was delivered with the draft: 

"New York, Dec. 29," 1895.' 
Messrs. Brigham Bros. 
Gentlemen: — 

Any draft that you may|draw on A. Feelstock of 
this city, we guarantee to be paid at maturity. 

KAUFMAN & BLUM." 

The draft was not paid and the bank sued Kaufman 
& Blum on the guaranty. What kind of a guaranty is 
this? Should the Indiana IN'ational Bank succeed in 
this action? Why? 

24. A woman 70 years of age, who had saved about 
$5,000, applied one evening at a municipal lodging 
house, and on the following morning was induced to 
execute a power of attorney to J., the superintendent 
of the Out-of-Door Poor of such city. He thereupon 
deposited her money in his own name, and entered into 
a contract with some sisters of charity whereby he 



338 COMMERCIAL LAW. 

agreed to pay $200 for her care and maintenance the 
first month, and thereafter $100 per month. After the 
second month the sisters informed J. that the woman 
was insane and could not stay with them any longer. 
She was subsequently adjudged as being insane. There- 
after J. on behalf of the woman entered into arrange- 
ments with a private home for insane people, agreeing 
to pay them $150 per month for her maintenance. Is 
this last agreement good? Give your reasons. 

25. B, a stockholder in a corporation, owns more 
than one-half of the shares of stock of the company. 
Has he got such an insurable interest in the corporate 
property as will enable him to take out a policy of in- 
surance on the same? 

26. 







ThrecThQasana, 









E. T. Smith was a surety on this note, which fact 
was known to the Portage County Bank. When the note 
was presented for discount by Clark, the bank declined 
to discount for him for more than $2000 ; and, retaining 
the note, they advanced $2000, making memorandum 
that such amount only was advanced and due on it. Is 
Smith released from liability on this instrument? 
Why? 

27. B, an agent to sell machines was authorized by 
C, his principal, to make a warranty requiring the buyer 
to make a test at once and give prompt notice of any 



QUESTIONS FOR GENERAL REVIEW. 339 

defect so that it might be remedied if possible. B makes 
a warranty giving the buyer the absolute right to return 
the machine if it should not give satisfaction during the 
first week of its use. The buyer subsequently holds B 
liable on the warranty and recovered judgment against 
him which B is compelled to pay. Can he now look to C 
to reimburse him? 

28. M holds a policy of fire insurance in the X insur- 
ance company. The policy has a surrender clause in- 
dorsed thereon. M sends a letter to the insurance 
company asking that the insurance be terminated and 
that the unearned premiums be returned to him. The 
letter is accompanied by the policy with the surrender 
clause properly signed by M. The letter is mailed to the 
insurance company, but through a misdirection in the 
address, is delayed two or three days. Before the com- 
pany received the letter^ however, a fire has occured on 
M's premises. Is the company still responsible for the 
loss? 

29. J, a widower, 81 3^ears of age bedridden with 
paralysis and having five children, is induced to make 
a will to his son and his wife with whom he lived, by a 
threat that otherwise they would leave the testator. 
Should such a will stand? On what grounds do you 
give your answer? 

30. 
















^40 COMMERCIAL LAW. 

What kind of an acceptance is this? What is its 
•effect with respect to the drawer? 

31. C loaned B $1,000 for one year, demised to him 
a store and furnished to him his son as clerk without 
-specific compensation: B agreed to invest at least 
$3,000 in the business of store-keeping, to manage it, 
during the term, render an account at the end of it, 
and if required, pay over the $1,000 and surrender the 
store to C and pay him one-third of the profits of the 
business. Can third persons hold C liable as a partner 
of B? 

32. A made a contract with B purporting and 
professing to act on his own behalf alone and not on 
behalf of a principal. A has the undisclosed intention 
to give the benefit of the contract to C. Can C ratify 
that contract so as to render him able to sue or liable 
to be sued on the same? 

33. The American Credit Indemnity Company in- 
sured the Carrolton Furniture Mfg. Co., against losses 
on sales to debtors having a rating as to capital and 
credit in the last published report of E. G. Dun & Co. 
The application, which was made part of the contract of 
insurance, contained the question : " What have been 
your gross sales and gross losses each year during the 
last five years ? " It subsequently appears that the in- 
sured had actual losses greatly in excess of the amount 
•stated in their application. Can they recover under 
their policy on losses sustained during the last year? 
Why? 

34. The promoters of a corporation own certain 
land which cost them about $30,000, and they procured 
a subscription paper to be drawn in which the sub- 
•scribers agreed to pay certain sums set opposite their 
names for the purchase of its property at the sum of 



QUESTIONS FOE GENERAL REVIEW. 341 

$125,000. The promoters subscribed the paper in 
common witli otlier subscribers but did not intend to 
pay their subscription and in fact never paid anything. 
The money subscribed and paid in by the other sub- 
scribers was divided among the promoters. 'Wliat are 
the riglits of the stockholders? 

35. One of two partners after collecting part of the 
assets of the firm, absconded and by letter surrendered 
the remainder of the assets to the copartner. The co- 
partner thereupon took a new member into the firm 
without the consent of the absconding partner. Had he 
a right to do so? 

36. 






z^u^/^£^^c^^(y^i^j_ 



cnxxjCj^-T^CTiiL^ 



. Ollcy217ld7£.dJJl.ixiJ^^llJrc4LV- ^ 



,^J^25£— - ^^^^^^^.2..,..^/^^ 



This check contained this indorsement on the back: 
George A. Bent. 

The maker of this check owed George P. Bent 
$133.50, but by mistake he filled out the check to 
George A. Bent and mailed it in an envelope addressed 
to George A. Bent, and the latter received it and a bank 
cashed it for him. 

As bet-^'een the maker and the bank, who losses the 
money paid? Give your reason. 

37. A hired of B coaches to be used at an entertain- 
ment, and B agreed to care for such teams as should 



342 COMMERCIAL LAW. 

be sent from a distance. Pursuant to such agreement 
carriages of A were driven to B's stable, and with B's 
permission certain articles that were in the carriages 
were left in the office of the stable. The articles dis- 
appeared and B declined to give any explanation as to 
their disappearance. Can A hold him liable and on 
what theory? 

38. The consignor of a carload of eggs notified a 
railroad station agent that he desired to ship them in 
one of the railroad company's transportation cars. The 
agent thereupon procured a car of the company in which 
the eggs were shipped to Chicago over their road, to be 
there forwarded to the State of New York, the agent 
notifying the general agent at Chicago of the shipment. 
The Chicago agent issued a receipt to the consignor 
showing the proper destination of the eggs, but through 
the mistake of an employee of the railroad in instruct- 
ing a connecting railroad, the eggs were sent to the 
wrong destination and damaged through delay. What 
are the rights of the consignor? 

39. A executed a lease for a year from September 
1st, 1905, and on April 5th, 1906, after a heated con- 
versation between the landlord's agent and the tenant's 
wife, the agent said to the tenant "well move, I am 
glad of it." Some days thereafter while the tenant 
was still in possession, the landlord's agent posted a 
" To Let " sign on the premises without the tenant's 
consent and thereafter the tenant moved out, sending 
the keys to the office of the landlord's agent. The lease 
authorized the landlord to post a " To Let " sign on 
any day within ninety days preceding the expiration of 
the term. The landlord is now seeking to recover from 
his former tenant the balance of the rent due on the 
term. Can he succeed? Give your reasons. 



QUESTIONS FOR GENERAL REVIEW. 343 

40. An uncle verbally agreed with his nephew, a boy 
of fourteen, and with the boy's mother and guardian, 
that if the boy would accompany him, the uncle, from 
Ireland, to the Uncle's American home, and there as- 
sist him and accept his care and instruction, he would 
treat him as a son and will to him all his property. For 
seventeen years the boy faithfully fulfilled his agree- 
ment, but the uncle died intestate. Has the boy any 
rights in the estate, supposing that there are no creditors 
and no persons who could take by virtue of intestacy 
of the uncle? 

41. The following note was given in pajnnent of an 
organ purchased for the church: 

£ 6oo (3z?gqoo>*Alav. 2.U. /8^& . 

0«<ycar a.}-fer <Xa^<. we //?e Tr/isiees o^ i-hc 
Se.y/cn'Hi 'Prcshyfcrinn Qi7zr(?i„ -prom'Se to pasf lh<j Cfrify' 
eJ Jf, ^. fi>yMeTS . O/ v 3fnnc[rc4X, Uollart 

! Trztsiecs . 

The note is long overdue and suit is about to be com- 
menced on the same. Whom would you advise the 
holder to sue? Why? 

42. All the stock of a manufacturing company is 
owned by A and his daughter, the former of whom has 
for 25 years conducted its business without any meet- 
ing for the election of officers, and no other person had 
any voice in the management of its affairs. A gave 
a promissory note in the name of the corporation signed 
by him as President for money which he borrowed. 
Suit being brought on the note, A sets up as a defence 



344 COMMERCIAL LAW. 

lack of authority to execute the same. Who should 
succeed in the action and why? 

43. B and T were for some time in partnership under 
the firm name " Atlantic Forge Company/' all corres- 
pondence and contracts being signed by T alone. They 
dissolved and T formed a partnership with L to carry on 
the business under the style of " T & L.'' Notice of the 
change was given to all former dealers but was not ad- 
vertised. After the change A, who had no previous 
dealing with the former firm but had heard that B was 
a partner and had not heard of his withdrawal, wrote 
a letter addressed to T offering to sell goods on credit. 
T accepted the offer and the goods were delivered and 
a notice given for the price in the new firm name of 
T. & L. This firm having afterwards failed, A then 
learned for the first time that B was not a member. 
Could A hold B liable as a partner? 

44. A corporation was organized for the purpose of 
printing, publishing and selling newspapers. After 
organization it advertised that it would give insurance 
to any one who is killed while having a copy of the news- 
paper published by it in his possession. A, who is killed 
in a railroad accident, is found with a copy of such 
newspaper and the administrator of A brings suit 
against the corporation for the recovery of $100 insur- 
ance contained in its advertisement. What defense can 
the newspaper company put up to avoid liability? 

45. A, B and C entered into a partnership agreement, 
A to contribute $5,000, B $5,000 and C to contribute 
only his skill and services to the partnership. The 
agreement also stipulated that profits should be divided 
equally between the three partners. On a settlement 
and winding up of the partnership is C entitled to a 
share of the capital contributed? 



QUESTIONS FOR GENERAL REVIEW. 345 

46. The treasurer of the Haverhill Oil Co., gave this 
instrument for the purposes of the Company. 




Does it bind the Company? 

47. A sold stock to B, reserving " all profits and 
dividends of and upon such stock " up to January 1st, 
1906. N'o dividend was declared till April, 1906. Part 
of the dividend, however, was earned prior to January, 
1906. Who is entitled to the dividend? 

48. Y gave to the Standard Corporation his promis- 
sory note payable at a future time for twenty shares 
of its capital stock, and took a receipt from the treas- 
urer of the company to the effect that such note when 
paid was to be in full for such shares. The certifi- 
cates of stock were not to be issued until the note was 
paid. Thereafter one of the creditors of the corpora- 
tion seeks to hold Y liable as a stockholder for the debts 
of the corporation. Can he do so? 

49. B, a member of the firm of A, B and C, without 
authority and for his exclusive benefit indorsed a prom- 
issory note made by himself in the firm name and then 
delivered the note to the indorsee who took it with full 
knowledge of the fact. Thereafter A and C both prom- 
ised to pay the note without an independent considera- 
tion. Can the firm be held liable on the instrument? 



346 COMMERCIAL LAW. 

50. S loaned money to a partner but not on the 
credit of the firm. The money, however, was used for 
firm purposes. Can S hold the partnership responsible? 



JUL 27 1906 



